AT&T plan: Bigger and Better (for AT&T)

AT&T has now joined Verizon in announcing a shared data plan for wireless users. This is the moment that the two companies solidify their already crushing set of advantages over T-Mobile and Sprint.

Result: AT&T and Verizon can continue to reap the rewards of their existing market power, without needing to expand their services. That’s bad news for American consumers.

CNN has a good story about how the plan works, and how it compares to Verizon’s.

(Remember that there are only two companies involved here, and as one tweaks its plans the other will too – so the American consumer will be that frog that is forever being boiled. Slightly uncomfortable but oblivious as the heat (and pricing) continues to rise. It’s easy for two companies to cooperate implicitly without doing anything facially illegal.)

The basic idea is that each family or group will have a pool of bits – usable for anything – and a set of devices. Each device triggers a ka-ching: - a monthly fee. Each pool of bits is accompanied by its own ka-ching: if users go over their monthly limit. Neither of these fees bears any necessary relationship to actual cost, and there is no oversight (no cop on the beat) for any of this or over any future price hikes.

Because AT&T and Verizon are already big, families and groups will naturally want to consolidate their usage. No more “you like T-Mobile, I like AT&T” – the family can be its own marketing weapon, driving members to standardize on one provider. This is a gorgeous technique for market power enhancement: Get parents and spouses to do it for you.

Although on the face of it heavy data users may get an initial break on price compared to the status quo, when you add in the device fees and the overage fees the deals will (in the end) be extremely lucrative for AT&T (and Verizon). More fees can come in time – there are all kinds of ways to create impenetrable, shiny bundles that are impossible for the average consumer to compare. And here’s the genius part: the only real comparison will be to the other player in the market. A choice of two is no real choice, because having just one other doesn’t do much to constrain prices.

The result of all of this will be more subscribers for AT&T and Verizon, adding to their advantages of scale that set up massive barriers to competition. Those scale advantages will be added on top of their stupendous advantages in spectrum holdings and coverage. When it comes to an unregulated telecommunications business, bigger is always better – the next customer costs almost nothing to add, once you’ve made your initial investment, and provides a steady stream of profit.

T-Mobile and Sprint will stay on the scene. Their presence is essential for the Big Two to claim continued competition. But their actual ability to hold back the big guys’ power to take money from consumers will continue to diminish. And no one seems able to do anything about this.