In September Joshua Topolsky wrote an article for the Washington Post discussing this very issue. There are two main technologies that cellphones use to transmit signals: CDMA and GSM. The two biggest wireless networks are AT&T, which uses GSM, and Verizon, which uses CDMA, with T-Mobile and Sprint lagging far behind with much fewer subscribers.
GSM and CDMA are rival technologies, not compatible with one another, and leads to a standards war. The origins of satellite broadcasting in Great Britain, which led to the merger of British Sky Broadcasting, is another example of a standards war. In this scenario, two main satellite companies were competing against each other for customers, using different satellite systems and dishes to provide rival television networks to consumers. However, this rivalry translated into sunk costs. For the two competitors were spending lots of money to develop individual technologies, instead of working together to make the most of the investment and provide the best technology to consumers.
Likewise, the competing wireless networks in the US means that we’re essentially spending twice the money to get half the coverage. And this is not just because there are two different technologies being used for wireless service. Even companies that use the same technology, both AT&T and T-Mobile use CDMA, do not share such technology. The companies have purposively made the service incompatible with one another.
AT&T tried to merge with T-Mobile, but the government such merger due to antitrust issues. Yet it doesn’t seem clear to me whether or not the government’s decision improved the wireless network industry. For AT&T and Verizon have so many customers, and given the high switching costs for consumers to switch networks due to contractual constraints and the cellphone industry, it’s unlikely T-Mobile or Sprint will be able to remain competitive against these giants. From what I’ve read about T-Mobile, it seems as though people believe a matter of time before it fails and gets sold off to the different companies. So perhaps the government is merely delaying the inevitable? And in the meantime, customers are paying high prices for wireless service to get less coverage compared to other countries.
The issue of compatibility could be addressed via government regulation, as was done in Britain. And it’s possible that the US government could have used AT&T’s attempted merger as an opportunity to impose regulation when allowing the merger. The government supported AT&T with the telephone industry, and could likewise do the same with wireless networks.
Topolsky describes the competition between Verizon and AT&T as a “gangland turf war” where the companies squabble over snatches of bandwith. Such attempts to out-monopolize one another do not translate into increased benefits for consumers. Perhaps if wireless were forced to be compatible in a way that prevents such fighting, then the competition would lead to benefits that lead to improved service for consumers.
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