Spectrum Fees May Preclude US Low-Cost Cellular

theodp writes "Not to apologize for an industry that charges $27,000 to catch a Chicago Bears game, but will the huge spectrum fees charged by the government block the emergence of low-cost cellular service? In the most recent FCC spectrum auction, carriers paid nearly $20 billion to grab a swath of the 700MHz spectrum. And now under President Obama's proposed budget, wireless carriers would be hit with huge annual fees — eventually reaching $550 million per carrier per year — for the right to hold a spectrum license. Critics say the carriers will simply pass these fees through to consumers."

Comments

Stimulate economy?

[eggman9713]

Maybe Obama is banking on them passing it on to the customers. It means more money into the economy through increased charges. They could just put th

Re:Stimulate economy?

[omeomi]

Of course they're going to pass the fees on to customers. What else are they going to do, hold a bake sale?

Re:Stimulate economy?

[eggman9713]

No idea why my previous comment got cut off, but what I meant to say is that the government could put this "fee" into the federal reserve so they can give more bailouts to the cellular industry.

Re:Stimulate economy?

[Anonymous Coward]

Repeat after me: deadweight loss. Taxes are useful to run a government and supply needed services, but they can never stimulate an economy. Deadweight loss is also one of the reasons that monopolies depress an economy.

Re:Stimulate economy?

[aztektum]

e wheels on the bus go round and round?

Re:Stimulate economy?

[goombah99]

Of course they're going to pass the fees on to customers. What else are they going to do, hold a bake sale?

Right.

I think it's a fine idea. the spectrum is public land. You rent it you don't give it away. This is a point that both conservatives and socialists totally agree upon. It's the bought off congressmen who were out to sell it.

There have been exceptions to this of course. When you want a resource exploited you do sell it. For example, getting railroads built wiht land grants. Or the 1872 mining law.

But now a century later the 1872 mining law seems like a huge mistake to continue. And yet that's pretty much exactly what the "drill now" folks want to do.

The secret is to lease it and price it right. It's not that hard to do.

Re:Stimulate economy?

[nmb3000]

Maybe Obama is banking on them passing it on to the customers. It means more money into the economy through increased charges.

I certainly hope Obama's grand plan for the economy doesn't whittle down to a governmental implementation of the broken window fallacy.

Increased customer fees will hurt the economy, not help it. By increasing fees, it means more money going to the government not out into the economy where it might help smaller businesses from shutting down. It also means more people might cancel their service, or opt not to sign up in the first place, both of which hurt the cell providers.

They could just put th [CARRIER LOST]

Oh, the irony! :)

Re:Stimulate economy?

[gringofrijolero]

The John Gotti "deadweight loss" explains it a hell of a lot better than all those silly graphs. A guy puts a gun to his competitors head, and says, "Get the fuck out". And he pays a piece to the government for protection.

Re:Stimulate economy?

[rolfwind]

I think it's a fine idea. the spectrum is public land.

No, spectrum is not "public land". It's just there. Next the government will ban the sun because it's infringing on the visible spectrum that it rented/sold/leased to someone else.

All you are renting/selling is a monopoly to use said spectrum. In fact, it's an active deprivation of others who could put that spectrum in within their private lands.

Now, I know the practical reality and the reasons for it. But it would seem to me when the government uses eminent domain of something, to grant someone a monopoly on said resource, it should be for the public good. The public good does not mean filling government coffers. This is the heart of the dispute of the Kelo decision, where local governments took it to heart that anything that bought them more tax money was for the "public good", and thus the logic that farmers could be deprived of their farms simply because a developer swooped in and his construction would bring in more property taxes. It used to mean land was taken for a road or utility.

The same thing is happening here: filling government coffers is equated with "for the public good." This is not the case, because America was built on the principle of limited Government, not more of it. Filling public coffers only supports bureacracies the same way the PA Turnpike (now being given I-80 even though that was built with Federal Funds, pushed by the crook Rendell) monopolizes it's route, and the only thing is does (given the crappy generally 2 lane roads) is become a bigger and bigger bureacracy. You should see the public administration building dedicated to this one highway.

Monopolizing a section bandwidth in exchange of free national wireless internet would be for the public good. Monopolizing a section of bandwidth in exchange for money grows this insatiable government, just makes the system the domain of the highest bidder, raises the costs to the end consumers, and is not for the public good.

Re:Stimulate economy?

[pallmall1]

I think it's a fine idea. the spectrum is public land. You rent it you don't give it away.

I thought the spectrum auction was for licenses with a term of no more than 10 years. They can be renewed, but the conditions required for renewal will be expensive to meet -- but probably less than what the new Obama taxes will cost.

And when it comes to leasing land and drilling, exactly what is your expertise in this area? How many acres of land have you leased? How much prospecting have you done?

Re:Stimulate economy?

[Anonymous Coward]

Monopolizing a section of bandwidth in exchange for money grows this insatiable government, just makes the system the domain of the highest bidder, raises the costs to the end consumers, and is not for the public good.

Exactly. It's called an indirect tax.

Plus, you let the consumers get angry at the corporation while the government is left "innocent."

Re:Stimulate economy?

[mspohr]

I don't think the stimulus bill has any plans to 'break windows'. It seems that the plan (other than the tax cuts) all goes to making things and providing necessities (health care, unemployment insurance, public works).

The Iraq war could be seen as an example of the broken window fallacy but Obama is trying to get us out of that pointless mess.

I'm not sure I see how government fees hurt the economy. The government seems to spend all of its receipts on goods and services such as the stimulus plan so this would seem to help the economy.

If the government didn't spend the money and did something crazy like pay down the national debt, that would not stimulate the economy but I don't think that is likely to happen for a few years.

Re:Stimulate economy?

[OeLeWaPpErKe]

But, if you auction it off, with the proceeds going to government, the price will have to be in line with what companies think they can afford. The market makes a balance between maximizing service income versus spectrum price.

Thereby enabling both low-cost cell service and some amount of income to govt while not forcing the prices up more than people find reasonable.

By contrast, Obama's new tax on the poor does not accept any feedback from the market. The companies have no choice.

In addition, it will provide a $550 million per year per spectrum stimulus to government to prohibit "general use" spectrum. So say bye-bye to UWB and maybe even to some wireless spectra.

Re:Stimulate economy?

[SkyDude]

I'm not sure I see how government fees hurt the economy. The government seems to spend all of its receipts on goods and services such as the stimulus plan so this would seem to help the economy.

Apparently, you've never:

1) Formed and operated a business

2) Made a payroll for five or more employees

3) Had to deal with IRS or other government bureaucrats.

Unless you can answer "I have" to two or more of these, you are not qualified to make such a statement. You can offer it as an opinion, but try working in the real world and see if you still believe what you have written.

Re:Stimulate economy?

[Monkeybaister]

Don't forget that the FCC also will monitor, fine, and prosecute anyone who uses licensed spectrum without a license. Otherwise, someone, say me, could just put up an antenna in my home and easily make no cellphone work within a mile (oh yeah, I live in a city). There is no other way to create a contract that would bind every single person from setting up interfering equipment (either on purpose or accident).

Though, this is not to say the cost of monitoring and pursuing unlicensed broadcasters is as much as the fees, but it must be included in any economic analysis as it does add value to the spectrum.

Re:Stimulate economy?

[mspohr]

I have probably had a lot more real world experience than you but my personal anecdotal experience is really irrelevant. For the record, I have done all three of your points... you didn't set a very high bar... only 5 employees... only one business... only dealing with bureaucrats in one country... you must have a sheltered life experience.

The original post was referring to the macroeconomic effect of government fees and as long as the fees are spent on goods and services they are a boost to the economy.

We all expect services from government and we all have to pay taxes to pay for these. I value health care, education in addition to roads, police, fire, etc. You may have different priorities but you do need government unless you live in a cave with no possibility of an external threat.

Re:Stimulate economy?

[Anonymous Coward]

You fundamentally misunderstand the "drill now" folks if this is what you think. Most of this talk is about drilling offshore. This is not done by "selling" federal land to the highest bidder. It is done by granting a "risk agreement" to them, where they have the rights to extract oil from the area. They then pay a set royalty percentage on the oil produced from that area. Plus income taxes. Oil companies rarely, if ever, own the land they are producing from. And on offshore federal land, it is of course impossible.

Re:Stimulate economy?

[imhennessy]

I've done none of those. But that doesn't mean you aren't just totally incompetent.

I don't think that you are, but your post presumes that I trust you to:

A) have done those things
and
B) been competent at them

I'm willing to trust that you have. And yet, I'm still not willing to accept that having society pay for the benefits of organized government is a bad idea.

Perhaps all of the people who wish to starve the beast, and are convinced that it's a common sense position which everyone should agree with should get elected and actually do it. Instead, what happens is that they get elected every once in a while, they drive up the deficit and get out of office with a major recession in the works.

Meanwhile higher taxes and tighter regulation (within limits) consistently produce innovation and reduced federal deficits.

ivan

Re:Stimulate economy?

[Anonymous Coward]

No, spectrum is not "public land". It's just there.

A while back, a local news magazine printed an essay by some kid who argued that capitalism was good because it rewarded people according to how much they worked. I was like, "Wow, this kid really doesn't understand the basic theory of capitalism."

Capitalism is based on the idea that production is facilitated by "capital" (e.g. machines in a factory)). Further, the owner of the capital owns (a part of) what is produced through the use of the capital.

Under capitalism, if you are lucky enough to own capital (e.g. you inherited it from your parents), you sit around and do nothing all day and still "earn" all kinds of money. That's not an unintended consequence of capitalism - that's how capitalism is supposed to work.

There are some things like ideas where use is not inherently exclusive - everyone can benefit from the design of an electric motor simultaneously. There are other things, like land and the wireless spectrum, where use is inherently exclusive - we can't all build a house on the same plot of land and we can't all use the same wireless frequency at the same time.

The inherent properties of these resources are such that someone benefits from the use of these resources and someone else doesn't (specifically, is not allowed to by the government).

It doesn't seem inherently unfair to me that since the government is not allowing me to use the wireless spectrum for my own benefit that those who are using it (e.g. people with cell phones) should compensate me for the restrictions that have been placed on me for their benefit.

I suppose that in the ideal world all government programs (the military, social security, etc.) would be funded entirely by private donations. I would develop a great deal of respect for the Republicans if they took the lead on this and proposed that, from now on, the military will only spend what it collects in private donations - it will no longer be a burden on unwilling taxpayers.

If this happened and the government was entirely funded by private donations then the government could rent out the spectrum and give me the money directly. Until that time, the government has racked up huge debts on my behalf and the honorable thing to do seems to be for the government to use the rent to pay off the debts before giving me the rent directly to spend on myself.

Re:Stimulate economy?

[sumdumass]

The problem is with what is necessary and what isn't.

Japan during their economic down turn a few years back employed bunches of people to dig ditches by hand with another lot to fill them in. Those people received pay checks and purchased things in the economy and it crashed their economy in the process. Some things like police and fire, perhaps some roads are going to be necessary. Digging ditches and filling them in aren't. Likewise, certain other government services are a waste. Look at AM track which has never turned a profit in it's entire existence. Look at the bus lines and mass transit in most cities, they take away from government then they ever bring back. Most of them are severely lacking in functionality to boot.

The problem is agreeing on what is demonstratively necessary as a service provided by the government verses a service you simply don't want to pay for. Mass transit, you could ride a bike or purchase a car. Forcing companies to provide broadband internet to areas that are already unprofitable when the biggest reason they are unprofitable is because of easement fees and right of way charges that the government puts in place to begin with. So you use government to fix a problem government started but without understanding those problems in the first place, you end up creating more problems in the end. Some taxes and some regulation is needed, too much poisons the food, too little leaves people to cook their own food. People react and adapt more efficiently then governments do, if there is an error, it should be one that effects the people directly not one that has to entrench itself in government first. The people can react far better then any government can. Your completely wrong about the high tax and big government, any cursory glance at history will show that. And it isn't something that's just specific to the US, Ireland, the UK and many other countries saw increased growths by lowering taxes in the past.

Re:Stimulate economy?

[sumdumass]

Currently, it's up to the license holder to identify the interference and initiate the resolve to it. If after notifying someone of the problem and the problem isn't corrected, then the FCC gets involved. The fines associated with their involvement generally cover the cost of their involvement and then some.

It isn't like the FCC is driving around like the Verizon Can you hear me now guy.

Re:Stimulate economy?

[Anonymous Coward]

This issue has little to do with the public good. Rather, it has to do with long-established public policy. Early on, the United States decided that the "spectrum, like light, air, and water, are inherently public property as a matter of the laws of physics, and broadcasters are only paying to rent it."

Corporations are in the business of making as much money as possible for their shareholders. You're right. They will absolutely pass on the costs of this. But if they had the same amount in savings, I seriously doubt that they would pass that on to consumers. I give you exhibit A: Exxon.

Re:Stimulate economy?

[imhennessy]

If we take socio-economic mobility as an indication of innovation, and look at effective tax rates rather than book tax rates, the more highly taxed and strictly regulated economies of Europe and the thoroughly Europeanized former colonies have done better than the US in the era of plummeting taxes and deregulation that really kicked of with Reagan.

I often have to backtrack from what people assume my position is when I say things like that.

I certainly think consequences need to be considered. I even think that the consequences of government inaction, deregulation, loss of public goods, et cetera need to be considered.

ivan

Re:Stimulate economy?

[N1EY]

Well, the railroad land grant system has not been reviewed in the correct context. Prior to the development of the land in Nebraska and Iowa, the federal land was worthless. No one could reach the land and ship backwards to the east coast. The federal government gave some land away in order to sell their land at a much higher value. It is akin to making someone a teaser offer prior to the big sale. Hardly a match to annual licensing of spectrum fees for large sums. Our average cellphone bill per a customer is many times higher than those in most Asian countries. Land costs to many settler had been extremely low in comparison to land costs in foreign countries.

Re:Stimulate economy?

[sumdumass]

If we take socio-economic mobility as an indication of innovation, and look at effective tax rates rather than book tax rates, the more highly taxed and strictly regulated economies of Europe and the thoroughly Europeanized former colonies have done better than the US in the era of plummeting taxes and deregulation that really kicked of with Reagan.

The only way you can make that claim is if you ignore the over regulation that happpened just before Reagan and during the Reagan years. Holding a mans balls in a vise and clamping it down tighter is not a fair comparison to what he could achieve before you did so.

Also, your wrong to attempt to use socio-economic mobility as a sign of innovation. The biggest innovations in the US would have left people deprived of income and completely offsetting the entire system. As innovation comes about, less work is needed from people which means less pay and a constant increase in less employment. Less taxes make investments possible buy lowing the net gain needed for profit or return on investment which increases the oppertunity for the work thereby increasing the opportunity for income. You need to ask yourself, when is the last time a poor man has given you a job that you could live off of. When is the last time that has happened to anyone you know. It doesn't happen. Taxes take money from people who will give the jobs making jobs less likely to be found. The government then attempts to spend the money which creates a demand which causes jobs to be done. However, because the government is more or less a middle man here, the problems is that the same money is less efficient when the government passes it around. Of course you then get into targeting sectors and stuff like that but that can just as easily be accomplished by targeted tax cuts and direct subsidies.

I often have to backtrack from what people assume my position is when I say things like that.

I can see how you might look at the numbers and come to the conclusions you have. But starting in the 1970's, we started over regulating things and getting concerned about worker safety and the environment. Now we also have two separate tax systems, the federal and the local (state and city) which brings the effective tax rates to a different conclusion. Take states like Road Island and South Carolina and California, you will notice that their effective tax rates are higher then others. It's also the case that their unemployment is higher then others. Now there are many factors for unemployment, GM and other automakers moving plants to Mexico for instance is a reason I didn't include it but when normal economic issues happen, the highest taxed areas generally feel it first and the longest with higher unemployment and so on. Being that the federal government's tax rates are universal across the states, it's easier to see the differences within the states. Here are a few pages you can look through for tax information and unemployment information. Like I said, there are a number of things that effect this stuff, but another indication is the cost of living indexes too. The higher taxes areas generally have a higher cost of living which exaggerate the socio-economic mobility effects you were alluding to before.

I certainly think consequences need to be considered. I even think that the consequences of government inaction, deregulation, loss of public goods, et cetera need to be considered.

Personally, I believe there is a balance that needs to be struck between neccesary services and taxes for them and freedom to keep what you earned. If you get too far to one side, it's off ballance, if you get to far to the other, it's the same. And I believe this g

Re:Stimulate economy?

[imhennessy]

When you talk about only rich or wealthy people providing jobs, it starts to sound like a caste system. I don't think that's what you meant, but the argumentative bastard in me had to note it.

Also, arguing that innovation costs jobs, without mentioning any benefit from it, is an argument for stagnation in my book. I'm personally not too concerned with increased efficiency in this, that, or the other, if that means that a bunch of people end up dying ten years earlier than the would have had that efficiency not been introduced. Again, I don't think you're advocating innovations in reducing quality of life.

This has been an interesting discussion. I came to the conclusion years ago that talk does not change minds. Only personal experience changes minds, but talk is still very interesting.

ivan

Re:Stimulate economy?

[sumdumass]

When you talk about only rich or wealthy people providing jobs, it starts to sound like a caste system. I don't think that's what you meant, but the argumentative bastard in me had to note it.

Well, No. That wasn't what I meant at all.

It takes money to do things. It takes money to make money. It takes more money to do more things. It takes money to provide jobs. When you take all that money away from the people who have it, they don't do things, they don't create jobs in the hopes of making more money. That being said, I believe the structure should as free as possible so anyone can use the value of their efforts, their ingenuity, their persistence, and the resources they have availible and create wealth from it. This wealth is then traded for money and the money creates jobs in some sort of way. In a cast system, If I understand it correctly, your have classes of people and those classes pretty much can't change around. For instance, a lower class person could obtain as much money as a wealthy class person, but he would never belong to the wealthy class of people.

In reality, I'm just acknowledging that the people with money have the means to the end. The government taking that means in hops of providing the ends somehow other then they would be, would create inefficiencies in the effectiveness of the money plus create a dependency on the government to continue to provide those ends. When they can't or stop doing it, it all falls apart. On the other hand, when a private citizen fails to provide those ends, a much smaller amount of people are effected and those people can either through transferring the value of their labor or ingenuity or connections to each other as a resource, step up and replace that private citizen or simply fill the needs of other private citizens in other industry.

I went a little into ideals there, but I hope I demonstrated what I think the differences are. It's easier said then done, especially when you have to spend 50k on an environmental impact statement, another 3-5k on licenses and permit fees, 50k on lawyers to make sure every T's are crosses and I's are dotted before you can even break ground and build a new business or modify an existing business to suit your needs.

Also, arguing that innovation costs jobs, without mentioning any benefit from it, is an argument for stagnation in my book. I'm personally not too concerned with increased efficiency in this, that, or the other, if that means that a bunch of people end up dying ten years earlier than the would have had that efficiency not been introduced. Again, I don't think you're advocating innovations in reducing quality of life.

I only meant to mention that in passing as an opposition to the idea that innovation creates jobs. Innovation really makes makes jobs easier or none existent, it makes products cheaper and profits higher. Unmolested by excessive regulation or poisoned by failing to enforce regulation while assuming your standards of living doesn't increase, it means you won't be working as hard to make the same living, it means that the barrier to entry in your own enterprise will be lower and you or anyone should be eventually able to create jobs by grasping opportunities presented by the innovation. However, there is and will be a lag of several years if not decades between the creation of jobs.

The end effect with real innovation is that you can live how you are today for less money. If I told your that your monthly budget expenses would be cut by 20 percent, would you care much if a rich person made 20 percent more or that the socio-economic mobility scale seems further down the road? When we talk about socio-economic mobility, we are really talking about disparages in wealth and income levels. What ends up missing from this is where you get the benefit of $100,000 increase in wages today with only an increase of 50, 60, 70, or 80 thousand dollars increase or possible no increase at all. The

Re:Stimulate economy?

[sjames]

Increased customer fees will hurt the economy, not help it. By increasing fees, it means more money going to the government not out into the economy where it might help smaller businesses from shutting down. It also means more people might cancel their service, or opt not to sign up in the first place, both of which hurt the cell providers.

It Might mean more money going to government, or it might just be changing where the same amount of money comes from.

As for effects on small business, natuional cell providers are not big supporters of small business in the first place. They tend to buy from other large businesses. In contrast, the government does at least pay lip service to dealing with small businesses.

Re:Stimulate economy?

[Atario]

America was built on the principle of limited Government, not more of it.

Absolutely wrong. It was founded on the principle that the people are the ultimate authority. This has nothing to do with how much or little apparatus the people see fit to put in place, except that it is, in the end, their decision.

Simply pass the fees?

[iminplaya]

They'd be insane not to.

Re:Simply pass the fees?

[iminplaya]

Look, it doesn't matter who you got up there on camera. The army of bureaucrats must be fed. They are the people who run your government. They make the rules. You answer to them.

Re:Simply pass the fees?

[Anonymous Coward]

You've seen the many-digit number they call the National Debt right? A few fees in order to support the budget now are going to be among the least of the children's worries.

Re:Simply pass the fees?

[Anonymous Coward]

I work for a small business owner who's cheering Obama on. He wants gubermint paying for his kids college. He wants 'free' healthcare. He wants this stuff so bad that he is willing to accept whatever 'hidden' taxes appear; he won't have a word of complaint about those.

This country has crossed a threshold; there are enough voters that either currently depend or are are willing to become dependent on government that no other position politically viable. You either buy your voters or you don't get elected.

So, keep your criticism anonymous and steal what you can. Everyone else is.

Re:Simply pass the fees?

[KibibyteBrain]

I don't necessarily agree. Providers already have a large profit margin. There will be increased competition to cellular service over the next few years with voip and wifmax delivering a one-two punch allowing for even more competition in this space. I'm sure most of the cost will be passed onto consumers, but I'm also sure that due to competition they will eat some of that cost out of their profit margin as well. No tears in my eyes for that.

Re:Simply pass the fees?

[nmb3000]

So, keep your criticism anonymous and steal what you can. Everyone else is.

Insightful indeed.

In the same vein, I find the quote by Alexander Tytler (made in the 1950's) to be incredibly applicable to the United States today:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

- From bondage to spiritual faith;
- From spiritual faith to great courage;
- From courage to liberty;
- From liberty to abundance;
- From abundance to complacency;
- From complacency to apathy;
- From apathy to dependence;
- From dependence back into bondage.

I can't help but see our current state as being between apathy and dependence -- so yes, steal what you can while you can. It probably won't be around much longer.

Re:Simply pass the fees?

[gringofrijolero]

I'm kinda new here. Do people always get modded down for stating the obvious?

Consumers?

[pitterpatter]

Who else can pay?

Do the math...

[aaarrrgggh]

$10/user/year for the proposed fees.

$40/user/life for the license.

Drop in the bucket compared to the initial infrastructure deployment. In an efficient business, service would be almost free after 12 months.

Re:Do the math...

[icebike]

> In an efficient business, service would be almost free after 12 months.

Perhaps in something like water or sewer where nothing changes.

But would you be happy with the cell phone service and coverage you had in the past? We demand new technology, better connections, faster data, unlimited calling, etc, etc, etc.

It seems the industry is in a constant state of rolling out new services.

Re:Do the math...

[Puffy Director Pants]

Perhaps in something like water or sewer where nothing changes.

The work crews digging up the road by my house would beg to differ.

Re:Do the math...

[plover]

Perhaps in something like water or sewer where nothing changes.

The work crews digging up the road by my house would beg to differ.

Same with the work crews fixing the cellular spectrum outside my window. Oh, wait ...

Re:Do the math...

[Reziac]

Actually, one reason I *don't* have a cellphone is because rather than basic service getting cheap, they keep adding useless shit (at least to me). Give me a $5/month phone (so it's competitive with the poverty rate) that's *nothing but a phone* and I'd be happy.

Re:Do the math...

[Anonymous Coward]

Cell phone service is a joke, and we don't DEMAND more crap, they sell us more crap. When I lived in Utah, I had cell phone service through Cricket. $35/month, great service, and unlimited calling (IE I didn't have minutes). For another $5/month I had unlimited texting. No in network crap, no nights/weekends crap, just use the phone for a flat rate. Why don't we "DEMAND" that from everyone else?

Re:Do the math...

[yog]

Try one of the pay as you go deals. You can get a phone for $10 or $20 and just pay about $0.25/minute to use it. AT&T has free calling to AT&T customers. It's a lot cheaper than the average monthly plan that will run you upwards of $400/year.

Re:Do the math...

[Reziac]

I've thought about those (and probably would go that route if I couldn't get a landline so really needed the cellphone) but the problem is that you pay up front and if you don't use it up within their timeframe, oh well, wasted money. Or at least so it was last time I checked.

Re:Do the math...

[Anonymous Coward]

There are offices all over the U.S. that constantly monitor spectrum violations. And yes, they do swoop down on offenders through triangulation. Without them, the airwaves would be chaos.

Re:Do the math...

[DanZ23]

T-Mobile To Go prepaid is $.10/min. once you load $100, plus minutes last for a year. Any amount reloaded restarts the one year, so if you still have a $50 after a year a $10 bump will then give you a $60 balance good for a year.

Re:Do the math...

[Night64]

In my country government regulation mandates that companies must provide basic services with "nothing but a phone". But what really make prices go down is that I can change my carrier whenever I want and keep my phone number. You have to love when regulation makes a market more competitive than it would like to be.

Re:Do the math...

[tepples]

Give me a $5/month phone

I've been happy with Virgin Mobile USA. Because I use my mobile phone mostly for arranging rides and land-lines for everything else, I don't need a lot of minutes. So I'm on the lowest top-up plan, where the company takes $15 plus state sales tax out of my bank account every 90 days.

Re:Do the math...

[Reziac]

Now that's more like it. And I'll have to mention it to my neighbour, who can't afford the normal packages but seems to need rescuing from the side of the road all too often!

tax in disguise

[token_username]

"Critics say the carriers will simply pass these fees through to consumers."

What we have here is a stealth tax. There is absolutely no way these costs will not be born by the consumer. This is the nature of business. If your costs rise, you need more revenue to cover them. Revenue does not come from fairies but from customers. In this way, Obama gains credibility only from those who want to stick it to the "big companies" and don't think deep enough to realize where this money actually has to come from. *sarcastically* Thank you President Obama for increasing my contribution to the federal budget. I was looking for another way to funnel you my money.

Re:tax in disguise

[ArsonSmith]

No, the big company executives are all going to go get a second job delivering pizzas in the evenings in order to pay for this. They wont pass it to the consumers that would be an excessive tax on the lower class and a drop in the bucket on the rich and upper middle.

Re:tax in disguise

[Anonymous Coward]

Right! Corporations should have everything for free. We should do everything they want. And I suppose you want to polish Bill Gates' balls too.

You are basically arguing the same old tired right wing arguement. Spectrum is a resource. How do we sell it and get the fair market value? Well you auction it off dumbass!

If these companies are dumb enough to pay too much then they go out of business and the spectrum goes right back to the American People. And another company picks up the infrustructure for a bargain. THAT'S HOW CAPITALISM IS SUPPOSED TO WORK!! ITS SUPPOSED TO BE MESSY.

You idiots are arguing for a perfect world where the government decides who to *give* away resources too. YOU DUMBASSES are COMMUNIST acting like capitalist.

Re:tax in disguise

[rhakka]

Your need for increased revenue presumes, of course, that you *need* all the profit you were originally making. What is the margin on cell phone services? I have no idea.

How about, specifically, the margin on texting? http://www.nytimes.com/2008/12/28/business/28digi.html

Hmm. yeah, that invisible hand does a really great job eh? So I guess if a text tax were in place, they would *have* to raise their prices. of course!

I don't know what the margins are on the overall business model. But it's simply not ture that there is "no way" these costs will not be born by the consumer: that is, if those "costs" are already born by the consumer, and the company is simply profiteering on OUR wireless spectrum. If that is not happening, of course, then I fully agree with your point.

But what do you think is a fair price for using our wireless spectrum then? by your argument, it should be free, so the service can be given at minimal cost to the consumer, or it's a 'stealth tax'. Is that really what you advocate? How about logging national forests for free to get the price of lumber down?

Re:tax in disguise

[Shakrai]

You are basically arguing the same old tired right wing arguement

Pointing out that the carriers will pass any increased costs onto consumers is "the same old tired right wing argument"? Ya know, you guys don't get to automatically dismiss any and all criticism of Obama using that line, right?

Re:tax in disguise

[Shakrai]

How about, specifically, the margin on texting? http://www.nytimes.com/2008/12/28/business/28digi.html [nytimes.com]

Hmm. yeah, that invisible hand does a really great job eh?

The invisible hand is working just fine. If people weren't willing to pay that much for texting then the cost would come down. Nobody needs texting. People want texting but few people can make the argument that they need it.

In a free market a company will charge what the market will bear. Their competitors will lower their price if they think they will make more money by doing so, otherwise they have no incentive. Do you think Verizon/AT&T would steal enough customers from the competition if they lowered their SMS rates to make up for the revenue they'd lose? If lower SMS rates were all it took to attract customers then Sprint and T-Mobile would be #1 and #2 instead of #3 and #4. Apparently there are other factors at play though.

Re:tax in disguise

[Anonymous Coward]

Corporations don't pay taxes. People pay taxes.

Lrn 2 economics n00b.

Re:tax in disguise

[afidel]

Verizon's 2008 operating margin was 17.34%, their return on average equity was 13.93%, neither are particularly stellar or out of line. Exxon and GE are similar, Walmart is lower for margin and higher for return. Basically they are an average Bluechip stock.

Re:tax in disguise

[mysidia]

However, from the point of view of fairness.. it makes sense.

Currently carriers pay a one-time fee for a bit of spectrum and get it for life, that isn't in the public interest.

Ongoing use of spectrum should require ongoing fees, to discourage waste, or carriers buying excessive spectrum they don't need.

The recurring fees ought to be based on how much spectrum they've bought instead of being a per-carrier fee, however...........

Re:tax in disguise

[icebike]

Oh, leave him alone.

He needs to prove to himself that you can Tax your way out of a depression.

When is shining dream lies shattered in the dust in four years he will be a right winger too.

Re:tax in disguise

[Shakrai]

No, the big company executives are all going to go get a second job delivering pizzas in the evenings in order to pay for this

How do you deliver pizzas in a Gulfstream IV? ;)

Re:tax in disguise

[icebike]

> Currently carriers pay a one-time fee for a bit of spectrum and get it for life, that isn't in the public interest.

Its an asset. They can't make money on it unless they put it to use.

If they had any unused spectrum your argument would make more sense.

Its in the public interest to use our (Yes, OUR) radio spectrum. Allocating it to companies who will put it to the use that WE WANT, is in our interests. Turning around and taxing them on their "use" is just so much self flagellation. Tax their profits and let it go at that.

Space for Freeways is scarce.
We need Freeways
Government allocates space for freeways. (Buying it if necessary).
Private contractors build Freeways.
States maintain them.
Should we tax these contractors and States every year for the land allocated to roads?

Re:tax in disguise

[plover]

No, the big company executives are all going to go get a second job delivering pizzas in the evenings in order to pay for this

How do you deliver pizzas in a Gulfstream IV? ;)

Really, really fast.

Re:tax in disguise

[Reziac]

Since Mr.Obama is so good at fundraising, he's just putting his best skills to work -- separating citizens from their wallets.

How about the gov't stops spending so much?? Then it wouldn't NEED new stealth taxes..... and citizens don't get to go out and rob someone every time WE get strapped.

Hmm.... there's a thought. Next time you overspend your credit limit -- rob the government!!!

Re:tax in disguise

[Reziac]

As the old saw goes, "If you're not a liberal at 20, you have no heart. If you're not a conservative at 40, you have no brain."

Re:tax in disguise

[fishbowl]

Either the market can bear the higher cost, or it cannot. And if it can, and if that helps alleviate the shortfall government's budget deficit, then so be it. If the market *can't* bear the higher cost, then the companies *can't* "pass the costs on to the consumer", since that's the definition of the price level the consumer won't pay.

Re:tax in disguise

[pcolaman]

With fucking parachutes, man. With fucking parachutes... *insert joke about bailed out companies having to deliver pizzas via Delta or American Airlines*

Re:tax in disguise

[pcolaman]

That "same old tired right wing argument" is going to land a bunch of Democrats out of jobs in two years if the spending spree fails. Then they can say that the "same old tired right wing argument" caused more unemployment...theirs.

Re:tax in disguise

[Anonymous Coward]

Verizon's 2008 operating margin was 17.34%, their return on average equity was 13.93%, neither are particularly stellar or out of line. Exxon and GE are similar, Walmart is lower for margin and higher for return. Basically they are an average Bluechip stock.

Looking at my current portfolio, I'd kill for 13% returns....

Re:tax in disguise

[tobiasly]

Verizon's 2008 operating margin was 17.34%, their return on average equity was 13.93%, neither are particularly stellar or out of line. Exxon and GE are similar, Walmart is lower for margin and higher for return. Basically they are an average Bluechip stock.

Your silly little "facts" and "numbers" have no place in the effort to make excuses for Obama's enlightened budget, please keep them to yourself. Obama says that if we make less than $250k then we won't pay another dime! So we need to make sure these big bad companies pay a fair price for their use of our spectrum...

Re:tax in disguise

[benow]

I think that's a bit naive... using network theory, the more people that use something, the more it will be used. If someone texts you, you're probably going to text back. If many of your friends send texts, you're probably going to be a texter... sure, texting is not a neccessity, but it's a high probability... an inevitable expensive upsell.

There is only power in Gahndi'esque non-participation if it is adopted in critical mass levels. This level is difficult to hit if there is a continual friend-backed participation push. Even if there is mass attempted vestigilization via concerted non-participation, there's still enough idiots who don't care. This, compounded with familiarity means there's no great escape from expensive texts.

Re:tax in disguise

[Anonymous Coward]

Your need for increased revenue presumes, of course, that you *need* all the profit you were originally making. What is the margin on cell phone services? I have no idea.

The price of something depends upon both what customers are willing to pay and what producers are willing to accept. Increase the cost, and that provides some pressure on the supply curve. The market clearing price will move up, but by how much depends upon the elasticity of the demand curve.

So, you're right that some of the increased costs might be absorbed by shareholders (i.e. retirement accounts...) rather than customers. That depends on a couple things, though.

One I've already mentioned is the elasticity of the demand curve. Add an additional fixed cost to, say, oil, and that will be pretty much directly passed on to the customers.

Another factor is the size of the cost increase. A company can afford to operate at a loss, briefly or on a single item. An industry cannot sell below cost and survive. If your extra tariff increases the cost enough, the players will have no choice but to raise prices to reflect them. The ones who don't will disappear and reduce supply enough that the price will rise anyway.

The fair price for the wireless spectrum (or national forest timber) is the agreed upon price. If the government decides that that was not a fair price, then they should return any money already paid, with interest and penalties, and hold another auction. Or whatever the opt-out clause of the sale specifies.*

*if there is no opt out clause, then the money should come entirely out of the personal funds of the legislators who drafted the sale.

They should most definitely not decide unilaterally and arbitrarily to raise the price after it's already been agreed to.

Re:tax in disguise

[Arthur Grumbine]

On time.

Re:tax in disguise

[hydromike2]

the problem is that most people are too stupid to realize this in first place and will get upset if the same amount was directly taken in taxes from them directly even though it is cheaper for them because the corporations will not charge you exactly what the extra cost to them it is from taxes, they will charge you more to make money on those taxes

Re:tax in disguise

[Tycho]

Here is a different analysis of the facts from me. From the SEC 10-K form Verizon filed for the fiscal year ending 12/31/2008, submitted 2/24/2009 and can be found here:
http://idea.sec.gov/Archives/edgar/data/732712/000119312509036349/dex13.htm

About a quarter of the way down the page is the Income and Expenses breakdown for the Wireless division. Keep in mind that 45% Verizon Wireless is owned by Vodafone and 55% is owned by Verizon proper. So Vodafone and Verizon most likely have some sort profit/loss sharing plan. In any case, these numbers are for the whole Wireless division. In 2008 the division received just over $49 billion in income, a 12.5% increase from 2007. The total expenses for 2008 ended up at just over $35 billion, 10.1% higher than 2007. The profit was about $14 billion, or 18.6% higher than 2007.

As one looks at the breakdown of the wireless division expenses for 2008 one may notice a few odd or unusual numbers, 15.5 billion was from the cost of services and sales. These include both the costs of operating the wireless network, routing calls, and discounts given to customers upgrading their equipment. Not too much interesting I suppose, Verizon could start charging what the phone was actually worth instead of the joke prices they do now, the primary portion of the 19% increase in expenses this section from 2007 was customer equipment upgrades. However, some may claim that this passes the costs on to customers, but the discounts also lock customers into two year contracts.

The $14.2 billion spent on the "Selling, General, and Administrative Expense" category is more interesting on the other hand. It represents wages, sales commissions, benefits, advertising, promotions, bad debt expenses, and regulatory fees. "Can you hear me now? Good." Who thinks that Verizon spends a bit much on advertising these days? Who thinks that Verizon could cut back even, just a bit, on advertising, retail stores, gimmicky promotions, and sales commissions for corporate sales, without significantly cutting back on service or increasing customer costs? In 2008, Verizon managed to decrease its cost related to wages and benefits even.

These spectrum fees may exist so that if Verizon wishes to keep its spectrum, it better be willing to use it in a competitive manner. Otherwise, it is a yearly unneeded cost, like many Verizon employees, potentially, at least in the eyes of a few highly paid, but low skilled executives. One might think that surrendering unusable, costly spectrum to the FCC would be wise. Think of these fees perhaps as being a bit like property taxes for radio spectrum, an added incentive to dispose of costly unused assets that have value.

Of course, I think the whole division of the 700MHz spectrum should be done again. It would be a better fix if it was done properly this time though.

Re:tax in disguise

[enrevanche]

Your description has nothing to do with a "free market". This is a description of an oligopoly. In these markets, there is simply not enough competition to have a competitive market. The "invisible hand" analogy only works with sufficient competition.

Re:tax in disguise

[maztuhblastah]

Hmm. yeah, that invisible hand does a really great job eh?

The invisible hand is working fine. I know, I know -- this is clearly a failure of the free market: they're conspiring to raise prices, SMS messages are too expensive, it's almost pure profit, etc. I know. But that still doesn't mean that the invisible hand isn't working. A lot of people get this one wrong, so I understand your mistake... but the free market won't always derive a "fair" price, or the "right" price (in your mind) for a good. Instead, the price of a good will (eventually) arrive at whatever price the market can bear. In this case, that happens to be $0.20/message. Why? Because that's what most people are willing to pay.

Now personally I think that's absurd. I haven't paid to send an SMS in a long, long time, and I don't really see the appeal; I certainly would never pay $0.20 to send 160 characters when I can send an e-mail for much, much less. But I'm an outlier. The point of equilibrium appears to be $0.20, thus the carriers can charge that and people will pay it.

Re:tax in disguise

[Anonymous Coward]

The invisible hand is working just fine. If people weren't willing to pay that much for email then the cost would come down. Nobody needs email. People want email but few people can make the argument that they need it.

There, fixed your business model for you.

Re:tax in disguise

[Alex Belits]

He needs to prove to himself that you can Tax your way out of a depression.

You mean, to take money out of failing "free market" and put them into government-run infrastructure projects?

The only other way out of depression is a world war.

Re:tax in disguise

[Maelwryth]

"Verizon's 2008 operating margin was 17.34%, their return on average equity was 13.93%, neither are particularly stellar or out of line."

Thats wonderful.......errr...how much is their CEO paid? Looking at that I would have to say that the executives of the company are screwing shareholders badly. It is from 2007 of course, but do you really think much has changed?

Re:tax in disguise

[Anonymous Coward]

Surprise, surprise, surprise!

Obama is a tax-and-spend Democrat.

I, for one, do not welcome our new tax-and-spend overlords.

Oh, and I TOLD YOU SO!

Re:tax in disguise

[Anonymous Coward]

From the view of fairness, the purchasers should pay the agreed upon price. If the government now feels that that is too little, then they should use the opt-out clause and then renegotiate (hold another auction, set up a futures bid system, whatever). They should not be able to unilaterally change the terms capriciously.

If they don't have an opt-out clause, then they should buy out the purchasers with money taken from the legislators and regulators who allowed things to go forward without one.

In fact, if there's no opt-out or sunset in the "purchase" then perhaps we, as citizens, should sue the parties responsible for malfeasance anyway.

Re:tax in disguise

[TheWGP]

The problem with your argument is that people will pay whatever the carriers want, unless it's completely ridiculous. This is, at least in part, because of two things: one, two-year-contracts and two, more importantly, the fact that ALL THE CARRIERS CHARGE THE SAME. There simply ISN'T a national alternative - no carrier has any incentive to decrease price because none of them wants to kill the goose that lays golden eggs. Before someone says this isn't true, it's generally very well established and accepted (even the NYT article mentions it) that SMS is entirely free to the carriers - there is no work or maintenance required beyond what is already done for voice services.

Re:tax in disguise

[idiotnot]

Who thinks that Verizon could cut back even, just a bit, on advertising, retail stores, gimmicky promotions, and sales commissions for corporate sales, without significantly cutting back on service or increasing customer costs? In 2008, Verizon managed to decrease its cost related to wages and benefits even.

If you don't like the way they're running their business, uh, buy your cell service from someone else? I know, you voted for Obama and you have a difficult time understanding how the free market works.

Re:tax in disguise

[Shakrai]

I think that's a bit naive... using network theory, the more people that use something, the more it will be used. If someone texts you, you're probably going to text back

Every carrier with the exception of T-Mobile (why they don't is beyond me) offers you the ability to have SMS disabled. I've gone without it for the last eight years. It's not really that hard when you think of your cell phone as a phone.

This, compounded with familiarity means there's no great escape from expensive texts.

Turn them off and tell your friends that you don't get them. Problem solved.

Re:tax in disguise

[Anonymous Coward]

There's also the problem that the advertised price for a cellphone is never what you pay. I have a $29.99 plan - but you never see the E911 fee, the "cost recovery fee", the "number portability charge", or whatever the latest scam is to tack another $5-$10 until you get your bill.

So, the government decides to raise their spectrum fees - my guess is you'll never see the plans go up. You'll see another mysterious "fee" on your bill.

Re:tax in disguise

[mysidia]

There is unused spectrum. Yes it's an asset, but it's also competitor lockout.

They buy some spectrum and get a right to use it nationwide. But utilization is nowhere near 100%.

There's an ongoing cost to the public to continually let someone use the thing (lost opportunity for others to use the scarce public resource), so continued use shouldn't be free.

It's like being able to buy $1 billion of prime urban land, so the competition can't put up their own storefronts, and not having to pay any property taxes.

Re:tax in disguise

[icebike]

But this is easily remedied by revoking the lease.
Precedent is already set for that. Its already happened in several cases.

Alaska cited these instances when they revoked oil and gas leases because big oil was
sitting on the drilling rights without producing anything. They pulled back the lease
and re-issued them.

Re:tax in disguise

[Anonymous Coward]

If T-Mobile's 20c per SMS, sent or received, spam or not, is a lower SMS rate then I shudder to think what the other carriers must have.

Re:tax in disguise

[mysidia]

In principal it's easily remedied, in practice, it's not.

You see, the federal government, and the FCC in particular aren't the state of Alaska, the federal government is eminently susceptible to lbobying efforts by corporations; their cronies will not honestly seek to revoke their licenses on the basis of non-use.

State governments (at least some of them) are in many respects more insulated and more able to take actions large corporations don't want without so much fear of political repurcussions.

Also, oil and gas leases are much more likely to be revoked on that basis, it's much easier to detect when the leases aren't being used for production -- because the company has to report their production in detail.

And the state loses a lot of cash in terms of royalties, if the lease is left fallow, compare to purchased spectrum -- the federal government isn't "losing" money directly when spectrum is left fallow.

When you have to pay royalties for your production, you bet the state will revoke your lease if you stop producing, it's the only logical step.

The reporting for spectrum required isn't as extensive.

Re:tax in disguise

[Rexbron!]

"Critics say the carriers will simply pass these fees through to consumers."

What we have here is a stealth tax. There is absolutely no way these costs will not be born by the consumer. This is the nature of business. If your costs rise, you need more revenue to cover them.

You are assuming perfectly inelastic demand (if you don't know what elasticity is in an economic context have a look at: http://en.wikipedia.org/wiki/Elasticity_(economics) ) which the wireless market market most certainly is not. The portion of a tax paid by consumers and by producers (regardless of who the tax is supposed to target) is determined by elasticity.

Re:tax in disguise

[icebike]

So, long story short:

    Sarah does what Barack just dreams.

Re:tax in disguise

[Burpmaster]

What we have here is a stealth tax. There is absolutely no way these costs will not be born by the consumer. This is the nature of business. If your costs rise, you need more revenue to cover them.

Wrong. There is absolutely no way that these costs will be paid by consumers. Basic supply and demand can tell you that. Businesses already set prices to maximize revenue. Dropping below the ideal price won't get them enough extra revenue from the increased demand to cover the loss from the lower price, and increasing the price won't make enough extra revenue from the increased charges to cover the loss from lost customers.

So they can't pass the cost on to consumers. What they can do is cut their own excess and increase efficiency. And those actions are good for the economy.

Re:tax in disguise

[The_Wilschon]

Wait wait wait. You're claiming that pricing the spectrum outside the reach of anyone but Verizon et al will increase competition? Man, I gotta get me out to California for some of that "medicinal" stuff.

Actual Cost

[rm999]

"According to the OMB (Office of Management and Budget), the fees would generate $4.8 billion over the next 10 years."

So, that's (on average) 480 million dollars per year for all carriers in the US. Assuming there are 180 million active cell phones in the US (accurate as of 2005), this is $2.70 per phone per year, or 23 cents a month. I think the total of hidden (read: fake) subcharges added to my bill are well over 23 cents a month. In other words, this charge really isn't noteworthy.

I don't know the specifics, but my only concern is that it will prevent small carrier from entering the market.

Re:Actual Cost

[CrimsonAvenger]

So, that's (on average) 480 million dollars per year for all carriers in the US. Assuming there are 180 million active cell phones in the US (accurate as of 2005), this is $2.70 per phone per year, or 23 cents a month. I think the total of hidden (read: fake) subcharges added to my bill are well over 23 cents a month. In other words, this charge really isn't noteworthy.

That might be true over the next ten years. When they're still phasing in this new tax.

At some point, it's going to reach that "eventually reaching $550 million per carrier per year". At that time, since there are more than one carrier, it's safe to assume we're talking, say, $1.65 billion per year. Which still isn't bad, I know.

But have you ever known a stealth tax to go down? Once people are used to it, they'll adjust the fit to get a few more billions out of it....

Re:Actual Cost

[Shakrai]

But have you ever known a stealth tax to go down?

Well, they did get rid of the Federal excise tax on long distance that funded the Spanish-American war. It only took them 104 years but hey, that's Government for you. If Obama's new taxes are repealed that fast they'll go away in 2110, so I really don't see what the big deal is -- James T. Kirk won't be paying this tax on his communicator ;)

Re:Actual Cost

[pcolaman]

You are assuming the companies will do the right thing and tax a percent per customer that will add up to just that tax. I predict that they will tell their customers that new $4.50 added fee per month is due to the new imposed tariff by Obama, and laugh as they find yet a new way to make money off of suckers (see also: US Consumers).

Re:Actual Cost

[v(*_*)vvvv]

> ... In other words, this charge really isn't noteworthy.

Exactly.

> Critics say the carriers will simply pass these fees through to consumers.

This is not how business is done, or how prices are determined. Competition is the only factor. A business will justify their prices with however many excuses they can, but ultimately the price is determined by whether or not they can compete, and whether the customer can pay. If the prices are too high, regardless of any Obama tax, they would be forced to lower their prices.

If they were planning on raising their prices, then this is another excuse they could use to do it.

Re:Actual Cost

[AbRASiON]

If I know your telecommunications companies in the states, you work it out to about 23cents a month they will see that as $2.30 a month.

Only country I've ever heard where you PAY to receive calls or text, good god I would go on a machine gun rampage if I lived there :(
(That being said, I am in Australia and we do have hellstra keeping us down here so I can't complain too much on your behalf)

Georgism 101

[Anonymous Coward]

Carriers cannot pass on ad valorem taxes like this; they will charge what the traffic will bear, no less & no more.

Taxes might force companies to give up the spectrum rights as uneconomic holdings, however.

Re:Georgism 101

[icebike]

> Carriers cannot pass on ad valorem taxes like this

On what do you base that?

They pass on the cost of their own regulation, you can be sure they will pass this tax on to their customers.

Re:Georgism 101

[Anonymous Coward]

Uh YES they do. They can not just call it out as a separate 'fee'.

Where do you think the money for those taxes (lets call them what the are not, fees) comes from? It comes from the customers. It is not magically made up somewhere else. The customer PAYS it.

Re:Georgism 101

[tobiasly]

> Carriers cannot pass on ad valorem taxes like this

On what do you base that?

On the fact that he used a Latin phrase so he must know what he's talking about...

Taxes or fees

[microbee]

Since almost everyone got a cell phone, it's essentially raising taxes on everyone, but it's worse, because the poor and the rich will pay the same amount.

Re:Taxes or fees

[Shakrai]

but it's worse, because the poor and the rich will pay the same amount.

Please explain to me why that's "worse". Do you honestly believe that the rich should pay more for cellular phone service just because they can? Do you also think that your phone company should get a copy of your W-2 so they can implement a progressive sliding scale of E-911 fees? Maybe SMS charges should be based on your income as well?

Re:Taxes or fees

[jesser]

I believe the argument is that it's worse than increasing income taxes (which are progressive) by a similar amount.

Re:Taxes or fees

[Shakrai]

I believe the argument is that it's worse than increasing income taxes (which are progressive) by a similar amount.

See, that's where your wrong. You aren't thinking like a politician. If you raise income taxes then you have to get it through Congress and expend political capital. If you raise it through the FCC nobody outside of the technical community is likely to notice until it's too late.

Re:Taxes or fees

[Shakrai]

Listen at the end of the day, where do you expect the government to make more revenue?

Why does the Government need more revenue? Oh, that's right, people want stuff for "free"......

Re:Taxes or fees

[afidel]

I'm pretty sure he's referring to the fact that this type of flat use tax is regressive which is generally considered to be bad since it has a much higher marginal rate on those least able to afford it. Basically if the government wants more funding they should come up with a more progressive tax system to grow the overall economy (regressive taxes reduce the rate of currency flow through the market).

Re:Taxes or fees

[Shakrai]

taxes reduce the rate of currency flow through the market

Fixed that for you. You had an extra word in there.

Re:Taxes or fees

[afidel]

True, but regressive taxes do so to a larger extent.

Re:Taxes or fees

[BradleyUffner]

Please explain to me why that's "worse". Do you honestly believe that the rich should pay more for cellular phone service just because they can?

Nope, I believe the "poor" should pay less because the price impacts them more.

Re:Taxes or fees

[Shakrai]

Nope, I believe the "poor" should pay less because the price impacts them more.

For cellular service? Really? What other critical life necessities should be subsidized? Cable TV? Internet access? Gasoline? Why should the poor pay the real cost of anything when we can just steal it from the rich?

Re:Taxes or fees

[Anonymous Coward]

Being able to define "flat" as "regressive" and not be challenged on it is a wonderful victory for the "success must be punished" crowd.

Re:Taxes or fees

[jonaskoelker]

E-911 fees

My head just asploded right there.

So let me get this straight: if your house is on fire and you have a phone and no money left on your prepaid card, you can't call the fire department?

You gotta' be fucking frigging kidding me. You Americans have to put up with that shit?

- Jonas

(Oh, well I'm from China^W Denmark, so I have to put up with all ISPs censoring TPB. Thanks, censoring dumbasses of the IFPI.)

Re:Taxes or fees

[Anonymous Coward]

It isn't actually, the most successful companies will be those who pass the least of the cost onto their customers.

Besides, I don't see why the government should give away a valuable, limited, public asset to private companies. Let them pay market price, the last thing the providers need is corporate welfare.

It makes a lot of sense economically - free radio spectrum is pretty limited and highly in demand, so putting a price that reflects it's (huge) value encourages companies to actually make efficient use of it.

Re:Taxes or fees

[pcolaman]

I'll tell you how they make more revenue. Stop the fucking ridiculous spending. Unless you really think that your and my tax money needs to be spent on some of the useless pork that it is going towards. $1 billion for the 2010 Census (because god knows it's that important to count heads, and supposedly they're already at $3 billion of overrun on the cost of doing the 2010 Census), $125 million to renovate Washington DC Sewers (isn't this what that infrastructure improvement fee is for on your water bill?), $850 million for Amtrak (which loses billions a year, isn't it time we just let that company fail?), $75 million for a new State Department Security Training Facility (why can't the FBI just train them?), over $650 million for a new Department of Homeland Security headquarters plus furniture for said HQ. That's getting close to $3 billion dollars worth of wasteful spending, and I'm sure that's just the tip of the iceberg in this spending bonanza.

Re:Taxes or fees

[Shakrai]

You misunderstand. The E-911 fees are collected to fund the implantation of 911 call centers and upgrades to those facilities that provide new features (automatic location identification by mobile callers for example). That notwithstanding, any cell phone, regardless of whether the bill has been paid or the cell phone has even been activated can be used to call 911 in the United States. Well, assuming it has signal that is......

Oh, well I'm from China^W Denmark, so I have to put up with all ISPs censoring TPB. Thanks, censoring dumbasses of the IFPI.

Censorship has always been more acceptable in Europe than in the US. Don't believe me? Try selling some Nazi memorabilia in France or Germany. And yeah, Nazism is abhorrent but that still doesn't mean we need the Government to protect us from hearing about it.....

Re:Taxes or fees

[atriusofbricia]

but it's worse, because the poor and the rich will pay the same amount.

Please explain to me why that's "worse". Do you honestly believe that the rich should pay more for cellular phone service just because they can? Do you also think that your phone company should get a copy of your W-2 so they can implement a progressive sliding scale of E-911 fees? Maybe SMS charges should be based on your income as well?

Clearly that's exactly what he thinks. Screw the "rich" and all that, no?

Re:Taxes or fees

[cryptoluddite]

Please explain to me why that's "worse". Do you honestly believe that the rich should pay more for cellular phone service just because they can?

Because at 30k/year you might only have 10% of your income that you can save or invest with. But at 230k/year that number jumps to more like 50% (after taxes).

And if the point of the airwave tax is that we're all collectively sharing the spectrum, then yes people should be taxed in a graduated sense just like other progressive taxes.

Re:Taxes or fees

[garcia]

Please explain to me why that's "worse".

Everyone seems to forget the simple fact that we own the spectrum, not the government. What this is essentially doing is making the people pay for something they already own. Why the fuck should we have to pay to use it, watch the revenues go to pay for who knows what (remember the first sale that ended us up with $40 coupons for converter boxes we still had to pay for?)

This is bullshit and I'm surprised that Slashdotters aren't more aware of the fleecing that is taking place here. Shame on all of you.

Re:Taxes or fees

[Andtalath]

Not the point.
The point is that it's pretty irrelevant where the government gets the money, it doesn't have to be earmarked since it's not a business.

So, if they do want # billion extra, they can give it through some fee or give it out as a tax.
Giving it out as 0.1% tax raise means that no single person gets hit very hard, while a blanket fee does, while the rich folk pay hardly anything in relation to their disposable income, the poor folk do.

So, the point isn't that the government should force extra costs through cell phones, but they might choose to handle the taxes differently and more fairly.

Re:Taxes or fees

[shutdown -p now]

Do you also think that your phone company should get a copy of your W-2 so they can implement a progressive sliding scale of E-911 fees? Maybe SMS charges should be based on your income as well?

If a huge part of those charges is nothing more but tax in disguise, then sure, it should implement progressive scale.

Of course, this just highlights the stupidity of hidden taxes in general. I hope both lefties and libertarians can agree that those are bad...

Re:Taxes or fees

[Shakrai]

Everyone seems to forget the simple fact that we own the spectrum, not the government. What this is essentially doing is making the people pay for something they already own. Why the fuck should we have to pay to use it

Because that spectrum was an untapped resource until someone was willing to come along and invest billions of dollars into building a network to make use of it. Or do you think all of those cellular towers, base stations and backhaul infrastructure magically appeared by themselves?

Re:Taxes or fees

[Shakrai]

Because at 30k/year you might only have 10% of your income that you can save or invest with. But at 230k/year that number jumps to more like 50% (after taxes).

So basically you've decided that the person who is making 230k/yr has too much disposable income so we need to take some away to use for Governmental projects? Sounds like someone is a little bit jealous.

then yes people should be taxed in a graduated sense just like other progressive taxes.

So again you've decided what is and what is not an acceptable level of disposable income to retain for your labors? From my vantage point progressive taxes are legalized robbery. A flat tax would seem to be more fair -- if I make ten times as much money as you I still pay ten times as much in taxes. You seem to think that I should be paying twenty times as much just because you think I can afford to do so.

Re:Taxes or fees

[BradleyUffner]

I'm referring purely to the tax portion of the price. By following your plan you would be stealing from the poor people to subsidize the cost of the rich.

Re:Taxes or fees

[zenyu]

Everyone seems to forget the simple fact that we own the spectrum, not the government. What this is essentially doing is making the people pay for something they already own.

Everyone seems to forget that we own the land, not the government. What property rights are essentially doing is making the people pay for something they already own. Umm, no I don't think we have really forgotten the basic idea behind establishing property rights.

The spectrum auctions are a terrible idea, not because private ownership of rivalrous goods is a bad idea, but because there are way too few players for a private property system to be capable of preventing a cabal of owners from cornering the market and charging insane prices like $10-$20 a year (or even more!) for broadband and cell phone service. Until there are at least 1 million market participants with no more than 0.1% of the capital under a single person's control, private property is a very inefficient system. It's better to rent the property in leases that are long enough to allow a private entity to turn a profit 5-10 years, but allow you to increase the rent and split up lots until you reach the market participant count required for private ownership to function efficiently.

With Non-rivalrous "goods" property rights as a concept don't transfer well, see copyright, patents, trademarks, etc. But for spectrum, property rights are a perfect fit. Even if something like ultra-wideband pans out, well that is analogous to airplane overflight over your property (rental or private). We still need commons (parks), like 700 Mhz, 2.6 Ghz, etc. We need wilderness areas, 73Mhz, 608Mhz, 1.4 GHz, etc. But a large portion of the spectrum is set aside for private uses at the highest rate the market will carry.

Re:Taxes or fees

[glennpratt]

A tax imposed as a user fee is NOT a flat rate tax. It's regressive by definition.

Now it is a bit of an assumption that this is how the cost of the tax will be passed on, but not much.

Re:Taxes or fees

[Shakrai]

By following your plan you would be stealing from the poor people to subsidize the cost of the rich.

Come again?

Re:Taxes or fees

[Anonymous Coward]

A flat tax would seem to be more fair -- if I make ten times as much money as you I still pay ten times as much in taxes.

A flat tax is more fair if and only if you only consider the tax code as a completely separate entity. But once you factor in everything else it's very, very unfair.

For instance, suppose I could be earning 30k per year for doing nothing, from interest. How is that fair to the people earning 30k/year for a year's worth of work? It's not.

And that's the crux of the matter. A flat tax on work would be fair, but a flat tax on income is not fair at all. The problem is, people talk about income as if it were work, but income is not work. A CEO getting millions is NOT doing 1000 times as much work as anybody else at the company. That's not to say all work is equally valuable, but certainly getting paid interest 'royalties' for work you did previously is not new work.

Sounds like someone is a little bit jealous.

I'm in the 2nd-to-highest bracket. What bracket are you in?

Re:Taxes or fees

[afidel]

Flat taxes are those applied to all parties at the same RATE, not the same VALUE and they are neither progressive nor regressive, but rather flat. I don't have much problem with true flat taxes, in fact I personally strongly believe in a slightly modified flat tax structure, the fair tax.

Re:Taxes or fees

[Shakrai]

For instance, suppose I could be earning 30k per year for doing nothing, from interest. How is that fair to the people earning 30k/year for a year's worth of work? It's not.

So basically you've decided that income earned from investing your money well should be treated differently than income earned from working? I suppose that researching and managing your investments doesn't count as work in your world view?

A CEO getting millions is NOT doing 1000 times as much work as anybody else at the company.

The CEO isn't making 1000 times as much because he's doing 1000 times as much work. He's making that because his job skills aren't as common as those of others in the company and he can command a higher wage as a result. If the skillset to be a CEO was as common as the skillset to flip burgers then CEOs would make minimum wage as well. It's called supply and demand. You might want to read about it sometime.

Cirtics say...

[icebike]

> Critics say the carriers will simply pass these fees through to consumers."

Not only critics say that, anyone who has ever run a business will tell you that ALL costs are passed on to the customers in one way or another.

The only difference here, is that the carriers may be able to write these fees off of their taxes,
which is just that much less tax revenue, making the government's share zilch.

Re:Cirtics say...

[mbratton]

exactly. critics aren't saying this -- everyone with a cell phone bill is. I already get charged for "FEDERAL UNIVERSAL SERVICE CHARGE" and "REGULATORY COST RECOVERY CHARGE". how long before I see "SPECTRUM LICENSING CHARGE"?

Re:Cirtics say...

[Gorobei]

Exactly, good capitalism in action!

A business bids to get exclusive access to a public good (a band) and pays us all in exchange. Then it provides a service to paying customers and recoups its costs.

The whole thing seems so sensible that we need some republicans to swoop in and explain why it's unfair to businesses.

Re:Cirtics say...

[nine-times]

Not only critics say that, anyone who has ever run a business will tell you that ALL costs are passed on to the customers in one way or another.

Well that's definitely true in that eventually all costs must be paid, and businesses get their money from customers, and therefore all costs are in some way paid by customers. However, it's not true that all cost increases to a business result in cost increases to the customer, nor do cost decreases for the company necessarily lead to cost decreases for the consumer.

I find it almost funny how when you talk about customers getting overcharged-- "overcharged" in the sense that they're paying far most than something costs to produce-- everyone comes out of the woodwork to say, "Of course! This is capitalism! It's about supply and demand, and charging what the market will bear. Even if it costs $0.02 to product, they'll charge $100 for as long as people are willing to pay that price." Then these same people, when you mention that some regulation will increase the cost of production, they complain, "Well that cost is just going to get passed along to consumers!" Well you can't have it both ways.

There's some truth to it, but it's also true that companies do a lot of research to determine an optimal price for their product. If they charge too little, they sell lots of units but don't make as much per unit and they don't make as much money. If they charge too much, then they make more per unit but there volume is so low that they don't make as much money. There is often some kind of optimal point where they make the most money, and that's the price they charge.

Same thing with cell phone companies. The prices we're being charged per month is based on what will make the carriers the most money. Not cost. If you raise the costs sufficiently to "diminish supply", then you'll see an increase in price. But costs at this scale don't simply get "passed along to consumers" in the way people talk about it.

Re:Cirtics say...

[Anonymous Coward]

No. The only costs that are passed on to consumers are those that affect an entire industry; if the cost does not affect the entire industry and a business affected by it can get away with raising the price to compensate, they'd have raised the price already. Competition prevents costs from being passed on.

Except in cases like this where, as mentioned, everyone's costs are going up by the same amount.

Re:Cirtics say...

[techno-vampire]

how long before I see "SPECTRUM LICENSING CHARGE"?

That all depends on how fast BO can push this through Congress, doesn't it?

Re:Cirtics say...

[icebike]

> Well you can't have it both ways.

Can't have WHAT both ways?

Its true that the system of capitalism allows for a profit.
Its true that all taxes are paid by the customers.

Those two facts are in no way in disagreement, and not at odds with one another.

Its perfectly rational to allow a profit and oppose a tax.

The profit pays pack loans, funds development (GSM, 3G, 4G, 5G), buys groceries, yachts, hires maids, and pays taxes.
Does the tax do any of that?

Re:Cirtics say...

[icebike]

Why should we tax ourselves for the privileged of using our own bandwidth?

Re:Cirtics say...

[Anonymous Coward]

So how would you allocate spectrum? Seems like an auction market is the best way to do it ...

Re:Cirtics say...

[Ashriel]

The profit pays pack loans, funds development (GSM, 3G, 4G, 5G), buys groceries, yachts, hires maids, and pays taxes.

Taxes enable grants, provide incentive to innovate, and provide for public safety, transportation, education, and curtails obscene profit.

Does profit do any of that?

Re:Cirtics say...

[icebike]

Yes, profit pays grants, provides FAR greater incentive to innovate, provides for public safety (by making safe products) provides transportation, (again at a profit), provides for the education of its workers, and curtails obscene profits (or loses its customers to others). All this while producing what people want at a price they are willing to pay, and at the same time paying taxes so fat cats in government can feather their own nest and rip off the first derivative of the economic system.

Yes, Profit does all of that, and then some.

Nanny state much?

Re:Cirtics say...

[mgblst]

I like people who make up others to rant about. Why are the people who say "Of course! This is capitalism!", and the people who say "Well that cost is just going to get passed along to consumers!" are the same people, because I am pretty sure the fucking aren't.

And even if they were, there is no crossed message in the second statement, there is nothing wrong with that.

Re:Cirtics say...

[nine-times]

I happen to know that in some cases, it's the very same people. I've seen people here on Slashdot flip-flop on exactly this topic-- same username arguing both sides of the point. I've seen people that I know in real life argue both sides, and I've seen political pundits on TV arguing both sides. And in many of those cases, I've observed that these people have a political viewpoint that inclines them to pick whichever of these statements will most improve the arguing position of large businesses.

Now sure, there are probably a fair number of people who only argue one of these things, and I can't say to them "You can't have it both ways." In the case of someone making the first statement ("It's all supply and demand.") they're in better shape because they're understanding more about how these things actually work. In the case of someone making the second statement, they're failing to understand that prices aren't necessarily determined by cost.

Re:Cirtics say...

[Monkeybaister]

It's pretty basic economics, I learned it in the introduction to microeconomics course I took.

The simple model is that a producer is going to use the marginal revenue (the revenue from making one more unit) and the marginal cost (the cost to make one more unit) and where these two intersect is when the money brought in will be less than the cost to produce. The demand curve is then used to set the price from the number of units produced.

Normal theory only uses the marginal cost and the demand curves to determine the number produced and the price, which will always be a lower price and more produced than the method above because with the standard method, the number of units produced is set to where the marginal revenue is zero, which is the break even point.

No one wants to break even, they want to maximize profit, so everything costs more than it does to produce. This results in less production and higher costs.

Re:Cirtics say...

[Thalaric]

I find it almost funny how when you talk about customers getting overcharged-- "overcharged" in the sense that they're paying far most than something costs to produce-- everyone comes out of the woodwork to say, "Of course! This is capitalism! It's about supply and demand, and charging what the market will bear." Then these same people, when you mention that some regulation will increase the cost of production, they complain, "Well that cost is just going to get passed along to consumers!" Well you can't have it both ways.

Yes, but the second tenant of capitalism is that increasing competition drives all profit towards zero.

When you are talking about a government granted monopoly, the same rules don't apply. If increased prices are being caused by government intervention then you can realistically say that price is "passed" to the consumers without contradicting yourself.

haha

[Anonymous Coward]

and i still don't own a cell phone, suck on that bitches!

I just keep mine in a drawer in my desk..

[Anonymous Coward]

People still use cell phones?
Ha, suckers.

Little Wonder

[Programmerangel]

It is not surprising that the carriers are paying so much for a license. People that have studied wireless technologies know that the wireless spectrum is arguably one of the most valuable resources on earth. There is simply not enough space in the spectrum for us to do everything that we want to do.

If you look at the FCC frequency allocations chart (warning: PDF), you'll notice how many different industries and applications that are trying to use the wireless spectrum. And this chart is deceiving because much of the spectrum isn't usable for modern applications. Lower frequencies don't provide enough bandwidth, and high frequencies require very rare materials for the electronic components, so they are too expensive for most purposes.

There has been an explosion in research for wireless communication over the last several years because the demand for more capabilities has increased. This has led to incredibly complex encoding schemes and manipulation of the physical radio waves, and is now leading into cognitive radio.

The sad part is that most of the usable spectrum, even though allocated, remains underutilized. I am a researcher studying the spectral usage in Chicago, and we have calculated that the most heavily used parts of the spectrum are still only occupied about 11% of the time. There are also many parts of the spectrum that have been allocated, but are only used in certain geographical locations. The big TV Whitespace movement promises to introduce technologies that can potentially help us better utilize unused parts of the spectrum where available.

Am I surprised that the cellphone carriers paid $20 billion for the license? No. The survival of their company depends on them being able to transmit wireless signals. Just like an airline has to pay fees at an airport in order to be able to land their planes. There is no other option.

Re:Little Wonder

[icebike]

The shortage you perceive is fiction.

The lower frequencies still provide plenty of bandwidth for the task at hand, and even better building penetration than the cell frequencies.

The real problem of the imaginary shortage is the obsolete method of allocation for point to point radio with ever little agency of government using discrete frequencies. The NET effect over all such frequencies is that the entire chunk of the spectrum is idle 99.999 percent of the time. Its way worse than 11% you quote.

If this traffic were packetized, spred-spectrumized, time-divided, code-divided, etc, like cell traffic, you could serve an every agency in an entire state with the same bandwidth reserved for a small town sheriff's office. You touch on this later in your post, but you still fall prey to the shortage fallacy.

If the 20 billion were fed back into re-equipping radio coms for every street sweeper, fire truck, and utility agency in 3 years we would have an excess of bandwidth an frequency space sufficient for 100 years of growth. But it won't be, it will be swept into some welfare pot to buy condoms for crack addicts or something.

Re:Little Wonder

[Shakrai]

But it won't be, it will be swept into some welfare pot to buy condoms for crack addicts or something

I had a fun experience at the grocery store the other day. Witnessed a woman using a WIC card to buy half of her groceries. The other half (approximately $80 worth of junk food, beer and cigarettes) she paid for with cash. She had a iPhone too.

Aren't you glad your tax dollars are financing her iPhone, junk food and controlled substances? Imagine if she didn't have that wic card -- she might actually have had to settle for a candybar phone or something.

Re:Little Wonder

[afidel]

Do you have a link to your research? I'd love to see what bands are most heavily utilized.

Re:Little Wonder

[Karrots]

Is this the same a current trunking technology?

Re:Little Wonder

[Anonymous Coward]

i noticed if you go to that webpage you provided, it says that they provide the free food service to expecting and fairly recent mothers of a low income , if she was indeed spending that erroneously at you can least seek perverse comfort that she (and her offspring) are suffering for it.

Of course the carriers won't pass the fees on

[Russ Nelson]

Of course the carriers won't pass the fees on! How could they? The government won't let them. Just like the government doesn't let landlords pass on property taxes, or hotels tourism taxes, or airports landing fees.

No, the carriers will simply absorb the fees and lose money.

(sheesh)

Re:Of course the carriers won't pass the fees on

[Anonymous Coward]

or increase rates or fees and make up new fees for things that exists but the fee covers that one thing 10000% so they will make up what they lost.

no company every accepts a new fee and looses money. they find ways to make that money back.

Comment removed

[account_deleted]

Comment removed based on user account deletion

How?

[Pinckney]

Perhaps someone with a better understanding of economics can explain where I go wrong.

It seems to me that the cellular companies already charge so as to result in the maximum profit. They would be fools not to. Thus either increasing or decreasing their prices would result in lower profits for them---the former as customers leave, and the later as not enough customers join to make up for the lower price. If this is so, then how is it possible for them to pass the costs on to customers?

Re:How?

[GodKingAmit]

You're assuming that the cell phone industry is a competitive market.

Re:How?

[Anonymous Coward]

Perhaps someone with a better understanding of economics can explain where I go wrong.

It seems to me that the cellular companies already charge so as to result in the maximum profit. They would be fools not to. Thus either increasing or decreasing their prices would result in lower profits for them---the former as customers leave, and the later as not enough customers join to make up for the lower price. If this is so, then how is it possible for them to pass the costs on to customers?

You're basically saying, "The price is already set at the point where the supply and demand curves meet, so wouldn't raising prices result in lower revenues?"

If supply and demand curves were fixed, you would be absolutely correct: changing the price in either direction would result in a loss of revenues. However, the price and demand curves are not fixed: when the seller faces new or higher expenses, the supply curve shifts along the price axis in the positive direction. This means that the supply and demand curves now meet in a new (more expensive) place, which means that the supplier must increase prices to maximize revenues.

In this case, you may see the shift in the supply curve offset by a shift in the demand curve: many people will have less money to spend on cell phones, which means that the demand curve will shift in the direction of lower prices. Whether one or both of these shifts occur, the effect on volume will be the same: fewer people will buy mobile phone service (more specifically, the rate of new adoption will decline and existing users will cut back on their talk times).

Re:How?

[icebike]

When ALL carriers pass on these taxes, where are customers going to go to avoid them?

Why drop Sprint when ATT will charge you the same?

Further, there is no reason to believe they charge "so as to result in the maximum profit."
There is a strong tendency in any business NOT to test LOWER rates, if you are comfortable
with the profit you get now.

The best that can be said is that they don't RAISE their rate much ahead of the competition.

Thus, rates ratchet up. This is also why all carriers are
within a few pennies of each other when you compare equivalent plans.

But when the feds tack on new taxes and fees, soon all carriers will ratchet up again.

Re:How?

[Timothy Brownawell]

It depends on how competitive the market is, how profitable the cellular companies currently are, and probably a few other things.

If the market is not competitive at all (perfect monopoly), the price is probably fixed at whatever generates the most revenue and won't change.

If the cellular companies aren't making enough profit (result of perfect competition), they'll need to raise prices to cover the fees or go bust.

Reality is somewhere in the middle, I'd personally guess somewhat closer to the "monopoly" end due to needing to buy spectrum and such. So the prices will go up some, and profits will go down some (probably slightly more, because of limited competition).

Re:How?

[johnsonav]

When ALL carriers pass on these taxes, where are customers going to go to avoid them?

Why drop Sprint when ATT will charge you the same?

People won't switch carriers. But some, who were previously able to afford a cell phone, won't be able to pay the increased cost. They'll simply not have a cell.

Re:How?

[Anonymous Coward]

Your assumption that it is in the 'up front cost'.

My 'cost per month' is 69.95. After all of the fees, taxes, extra line charges, etc, it ends up being ~92 a month. It also seems to vary by 1-2 dollars.

That ladies and gentlemen will be how this fee is passed on. No one will notice it. They only care about the advertised price. All carriers will have the same fee so there will be no change in the market.

The companies are using a bit of subterfuge to 'hide' the rate. Thus artificially depressing where the marginal rev = marginal cost is. Long term people figure it out. Short term they only care about the 'big number' that is advertised. It the same reason why sales tax is not included on the tag in stores. To make the price *look* like it is cheaper than it is.

Now what will happen also is a 'few' people will fall out long term. As there will be a few who switch back to land line only.

But remember to give your change (hehe) to the government they need it so they can give it to citibank, aig, gm, and Chrysler, and whoever else wants to feed at the trough of the inflation flowing out of the government.

Re:How?

[Anonymous Coward]

I think I have a better understanding of economics than you, so I will give it a try:

Profits are the difference between income and cost.

Re:How?

[Aladrin]

Maximizing profit takes into account cost as well. If your cost increases, the price point of your 'maximum profit' will probably increase as well.

Re:How?

[Bill Dimm]

In spite of what people are saying, I think you have a point, although perhaps only by accident.
    total profit = N * P - C
where N is the number of customers, P is the price charged to each customer, and C is the total cost of providing the service to all customers. N will depend on the price charged (increasing price causes you to lose customers). C will, in general, have a fixed component and a part that depends on the number of customers (customer support costs, billing costs, etc.). If you take the partial derivative with respect to price, P, and set it to zero to find the value of P that maximizes the total profit, the fixed component of the cost C will drop out. So, a change in fixed costs won't change the price that maximizes total profit. If the government charges a flat fee for the spectrum, rather than a per-user fee, it should not impact the price charged to consumers (assuming phone companies maximize profits). In contrast, if the government charges a per-user fee, that would be passed along (and possibly amplified) in the price charged to consumers if pricing is based on maximum profit.

Never Happen

[DaMattster]

This will never happen because the low cost cellular market is starting to heat up. Take a look at Boost Mobile, http://www.boostmobile.com/ which offers a $50 a month unlimited plan as an example. T-Mobile will soon be following suit. There will be consumer back lash against exhorbitant cellular service costs. For years now, cellular service has been way overpriced and I am thankful for Boost dropping the boom on it. While I do not use Boost, I am a T-Mobile customer and T-Mobile is already in serious consideration of matching Boost's service. When this happens, I will pretty much be a T-Mobile customer for life. While their coverage might not be as good as other GSM carriers, their customer service is outstanding.

Re:Never Happen

[Shakrai]

While I do not use Boost, I am a T-Mobile customer and T-Mobile is already in serious consideration of matching Boost's service. When this happens, I will pretty much be a T-Mobile customer for life. While their coverage might not be as good as other GSM carriers, their customer service is outstanding.

I love T-Mobile but there's a reason why their rates are so much cheaper: Their network sucks donkey balls. They have to compete on price and customer service because there's no way in hell they can match Verizon or AT&T on coverage. They are fine and dandy if you live in a major city and rarely venture outside of it -- if you don't though they aren't really an option. Here in Upstate NY they cease functioning (if you are lucky you can roam on AT&T but half the time you can't) the minute you leave the city/expressway.

Verizon are an arrogant bunch of SOBs but they do actually have the network to back it up. What are you going to do, leave? Go ahead -- you'll be back. That's their attitude and until their competitors invest in the same type of network it isn't likely to change. AT&T might be able to do it but it will take decades for T-Mobile to -- if they are even interested in doing so.

Re:Never Happen

[dbcad7]

I'm a T-Mobile guy too.. and a few months back, I took off driving big rig (for 3 months).. Now I didn't go farther east than Denver or Cheyenne.. but I never ran into a situation where my phone didn't have service when I needed it to.. There were places in "no mans land" where there was no bars, but I am certain that in these places there were no bars for Verizon or others as well... So my personal experience is that west of the Rockies.. they're awesome.

Re:Cirtics say... (uhh exactly)

[CupBeEmpty]

The "critics" seem to know that customers are where businesses get their $$ from. Who knew?

"Sharing" isn't just for content.

[Ostracus]

Who else can pay?

Other nations? Foreign companies?

OH the poor telcos

[Anonymous Coward]

Do I detect some hand wringing for the telcos bottom line here? Do you feel that you have been taking advantage of them? Maybe a donation is in order. WTF! this is public property, leased through an AUCTION, nobody twisted anyone's arm here. Whats more this property was kidnapped from the public and replaced by an inferior slice of bandwidth for HDTV. It was the telcos that have been lusting for this property since day one.

Not A Free Lunch!

[logicnazi]

Using the 700Mhz spectrum for cell phones means it can't be used for other purposes. If we hadn't used this spectrum for cell service we could have used it to provide faster WiFi or for all sorts of other uses.

Now the net effect of auctioning off the spectrum rather than giving it away is (assuming an efficent market) just to transfer money from the users of cellphones to those who don't use cellphones. That seems only fair. The people who benefit from exclusive use of a public resource should compensate those who are denied benefits as a result.

When developers want to build houses on federal land we expect them to pay for the land even though it means the cost of the houses they sell will be higher. This is no different.

Of course if you accept the evidence that the cellphone market is not really competitive (high barriers to entry make it more like a monopoly) then this cost won't be all passed on to consumers so it's even more justified.

But Fees Are Awful

[logicnazi]

To clarify I'm defending the initial auction which the summary seemed to lump in with the fees.

I think the fees are abominable. From an economic perspective all they are doing is penalizing use of cellphones. There is no justification for not simply raising taxes more generally and avoiding this skewing effect.

These are TV frequencies

[Anonymous Coward]

Remember that these are analog TV frequencies, which the Obama administration has now kept from the cellular use longer than promised. The purchasers are not being allowed to use their new equipment when scheduled.

And Obama's adviser who promoted the delay is involved with several wireless companies who are already offering services similar to what the competitors will offer on 700MHz. Obama's advisor profits from the delay. Tsk.

Re:These are TV frequencies

[idiotnot]

*shh!*

You're not supposed to talk about that.

current spectrum auctions are stupid

[j0nb0y]

The carriers spend tons of money on buying spectrum. All this money goes to the government and is spent on who-knows-what. The owners of the spectrum then have much less money to invest in actually using the spectrum.

Don't get me wrong. I am all in favor of spectrum auctions. However, the bids should not be money. A bid should consist of what service will be provided, how much consumers will be charged for the service, and what areas the service will be provided in. The FCC can then pick winners based on who will provide the most efficient service. If a company doesn't live up to their bid, they lose their spectrum. This bidding process should be automatically repeated every 20 years. There's no reason an incumbent service should be able to hog spectrum that would be better used by a new service, or maybe even an entirely new technology.

Re:current spectrum auctions are stupid

[Reziac]

Interesting concept. And it would probably prove to be the companies that would do the most to enhance the GNP, thus benefiting the economy and the average citizen.

Re:current spectrum auctions are stupid

[epiteo]

We have tried that in Sweden and companies did:
* Make big promises
* Win auction
* Fail to deliver on promises
* Make excuses and avoid fines
* ...
* Profit!

Next time the spectrum will probably be sold to those who will pay most money for it.

Re:current spectrum auctions are stupid

[malchus842]

This would likely lower the amount the government could collect for the spectrum, since any business plan would have to recoup whatever you paid for the spectrum in 20 years and assume that all your infrastructure investment could be lost at then end of the 20-year cycle. This could mean serious disruption of a very useful service simply because it wasn't as efficient as a new service in the eyes of some government regulator (or court, more likely).

Other side effects would be lack of investment in improvements as the 20-year mark neared, huge gaps in usage of the spectrum while the old carrier's equipment was deactivated and the new carriers was built out, significant costs to consumers who would have to replace their equipment and find a new provider, etc.

Rather than improve things, this plan would likely stifle them,

Re:current spectrum auctions are stupid

[Anonymous Coward]

In theory, that's how broadcast license are supposed to work. Every time they come up for renewal, the station must show that renewing their license would be in the "public interest, convenience and necessity", and the public can comment on whether that is the case. If renewing the license doesn't further those public goals, the license is not renewed and would instead be awarded to another party who would better serve the public interest, in theory. But how often does that really happen? Pardon me, my favorite informercial is coming on again!

Re:current spectrum auctions are stupid

[zymano]

Sweden fails then. Didn't implement it right.

We use that type of contracting for defense all the time.

Re:current spectrum auctions are stupid

[epiteo]

Is that an argument for or against doing a "beuty contest" in place of a normal auction?

I somewhat disagree with the critics

[Sir_Sri]

So right now, they hold and auction, big companies with deep pockets buy up everything they can, and then leave a huge chunk of it poorly utilized. They drive the price up because they have money to burn, but then keep the price high because they have no inclination to let anyone else in. It's a self perpetuating system which limits access to the few companies that have cash to buy in in the first place.

If you add a cost you drive them to be more efficient about what spectrum they do use, and lower the costs of entry for the 'little guy'. It's not in AT&Ts interest to buy 5 billion dollars in spectrum, and then spend 500 million a year on space they only really need 10% of. That drives down demand for spectrum space amongst rich companies, since they need way less and have no incentive to buy more than they need, and opens it up to smaller players to buy small pieces.

More efficient spectrum utilization is nothing but good. It's one of the few resources there is no possible way to get more of, no recycling as such etc. All you can do is increase the usable spectrum by high and low bandwidth research and fancy encoding schemes at a particular frequency. Forcing companies to pay for what they have will make them much more efficient about using it.

Yes, they will pass on costs to consumers, but if they're buying less spectrum, and only using exactly what they need then the cost is only going to be for the spectrum they need to provide you service, and not for spectrum they're holding for the sake of holding.

Re:I somewhat disagree with the critics

[Anonymous Coward]

What's to stop them from picking up all the spectrum they can and still charging the customer to hold onto it? Sure you're thoughts are great in theory, but if they can pass all the costs onto the customer, why not grab up all the spectrum you can in order to keep others out?

Who pays for which fees?

[jgarzik]

Quote: "Critics say the carriers will simply pass these fees through to consumers."

Critics, you say?

Customers pay all fees, expenses, taxes, and other costs related to wireless services. That is fundamentally how all businesses work.

Pointing out the basics of business is hardly being a critic.

Re:Who pays for which fees?

[leehwtsohg]

The prices of most things have little to do with cost of production, and only to do with how much the consumer is willing to pay for them.
This is especially true for monopoly-type items, such as movies, windows (OS), either because of lack of competition, or because of irreplacability. A good example is texting (see link to nytimes article somewhere above). Under such conditions, increasing cost of production has nothing to do with increased prices. Though a preception of an increase of production cost might cause the consumer to be willing to pay more. This can be achieved through campaigns, e.g. publishing an article about increased cost to widely read websites.

Re:Who pays for which fees?

[nine-times]

This can be achieved through campaigns, e.g. publishing an article about increased cost to widely read websites.

Good point. And I wouldn't be at all surprised if these telcos had PR people out pushing this story. It's kind of win/win. Either you drum up enough support that people the administration won't have the political will to do it, or else you convince customers to accept a price hike.

So the government isn't allowed to play?

[cybrthng]

I mean, get real. If the spectrum went cheap private investors would buy it out and lease it to the highest bidder and "lil guys" would still be screwed.

"A corporation big enough to give you everything you want, is big enough to take away everything you have." -- Someone who knows the world isn't black and white.

What we have here is a stealth libertarian

[cybrthng]

Who are you trying to fool here? You honestly think if the government even offered these for pennies on the dollar that it would translate to lower fees for the consumer?

In our "Free market" private investment firms would snatch these up and re-market them for a profit. Why is the government exclusive of selling a spectrum for what its worth?

Why can't the free markets come up with new technologies that don't depend on the government subsidizing them?

Makes absolutely no sense

[cybrthng]

The government is selling a managed spectrum for what its worth. Period.

Why is it a tax if the government provides a service (which it is) but if a business provides a service its called a service?

Re:Makes absolutely no sense

[atriusofbricia]

The government is selling a managed spectrum for what its worth. Period.

Why is it a tax if the government provides a service (which it is) but if a business provides a service its called a service?

Because, I end up paying for government services I have never used and will never use. A company's services are only paid for by me if I use them. A tax is basically armed robbery. If I don't pay, men with guns show up at my home and either force me (through the courts) to pay or they take me to jail. If I refuse both of those options, they shoot me. If I refuse to partake of a company's services, they don't send men to my home to force me. Clear now?

Re:Makes absolutely no sense

[CrimsonAvenger]

The government is selling a managed spectrum for what its worth. Period.

Actually, neither you nor they have any idea at all what the spectrum is worth. The rent they want to charge in addition to the sale price is arbitrary, not based on the "worth" of something.

What they're doing is essentially adding "property taxes" (at the Federal level) to the spectrum. But by carefully not calling it a tax, they're convincing you that they're not setting up for federal property taxes on everything else.

Just another hidden tax

[yog]

(sigh) so much of the President's economic program is based on taxation of corporations and "the rich" that it seems bound to fail. While these policies have a populist ring to them that is currently rather popular after years of a Republican pro-business slant, ultimately the citizenry will come to realize that they are simply being taxed indirectly. Or, if they do not, then they are stupid and deserve what they get.

To prevent this, I think mobile phone operators should make it clear to consumers what percentage of their bill is directly tied to government corporate tax levies, just as the airlines do--when you look for a ticket, some of the airline websites like Southwest Airlines don't actually add in the taxes until the end, so that you get to watch that nice, cheap ticket suddenly get a lot more expensive thanks to Uncle Sam.

I suspect that in the end, the Dems will be forced to scale back their ambitious taxation program and the tax structure will be reshaped to resemble the Republican approach. Industry lobbyists will flock to Washington DC and make their case to members of Congress in terms of how it affects their constituencies (and chances for re-election), Congress will begin amending Obama's budget to alleviate the burden on constituency businesses, and we'll basically be back at square one. That, or we're probably going to have quite a prolonged recession as it gets even more expensive to start and operate a business in this country.

On the bright side, as cellular charges rise, wifi becomes a compelling alternative. We are seeing a lot of Skype-capable handhelds coming on the market, notably Android-powered phones, and one can foresee the day (hopefully soon) when dozens of generic Android handsets are available for cheap, that can make Skype calls at any hotspot. That may spell the end of the cellular industry's dominance in this country. If I were AT&T, Verizon, Sprint, or T-Mobile, I would be investing in wi-fi so as to be on the winning side of that game.

Re:Just another hidden tax

[oh2]

Considering the state of the US budget deficit and the national debt I think you guys need all the taxes you can get...before something worse than taxes happens.

Re:Just another hidden tax

[OeLeWaPpErKe]

On the bright side, as cellular charges rise, wifi becomes a compelling alternative. We are seeing a lot of Skype-capable handhelds coming on the market, notably Android-powered phones, and one can foresee the day (hopefully soon) when dozens of generic Android handsets are available for cheap, that can make Skype calls at any hotspot. That may spell the end of the cellular industry's dominance in this country. If I were AT&T, Verizon, Sprint, or T-Mobile, I would be investing in wi-fi so as to be on the winning side of that game.

Wifi's price will rise to, after all the government will protect it's revenue streams using guns. Obviously the carriers will demand "protection" (or they will go under, and then govt will lose their revenue, necessitating new taxes*).

So if what you say is true, one of two things will happen :
1) tax on wireless, slightly larger than the price hike of cellular
2) no more cellular, and extra tax on everybody (e.g. raised income tax, ... )
2)

* obviously the necessitating new taxes part is only true under democrats

Re:Just another hidden tax

[Anonymous Coward]

NO, now is the time to cut taxes. Cutting taxes actually brings in more income to the government. It works every time it's tried. Even better - if we passed the Fair Tax, business would boom and you'd have to hide to keep from working.

Google or Wiki "Laffer Curve".

Then take on Mission Impossible - convince an ignorant Democrat who is steeped in class warfare rhetoric. You could fill a library with what Democrats don't know about economics.

Re:Just another hidden tax

[The Second Horseman]

Yeah, actually, no. That only works up to a point. At a certain point, even Laffer shows that cutting taxes past a certain point eliminates revenue. They ought to cut taxes on smaller businesses, since they employ more people, but instead we give huge breaks to large businesses.

Coming up with a tax system that would lift health care costs off employers, especially small- and medium-sized businesses would be great, even if it increased taxes somewhat. It would make the cost predictable, your insurance carrier couldn't shaft you at renewal because you had an employee get cancer, and it's what every country we compete with does. For some reason, we've decided that this is one subsidy we can't hand out, which is insane. Instead, we fork over a huge amount of money to private insurers, and guarantee that our medical system has the highest administrative overhead in the developed world, and our care isn't nearly as good.

Decent medical would actually lower absentee rates, and likely lower disability claims in the longer term. That would lower costs as well.

The Germans actually seem to have a pretty good system, and one that would probably be sellable as something other than outright socialism.

Re:Just another hidden tax

[sumdumass]

Actually, most of the breaks are applied across the board and the large businesses only seem like they are getting a larger break because 5 or 10 percent of ten times the money is ten times the break.

Rarely, you will see targeted breaks like what is in the Stimulus bill directed solely are large businesses because they are the only ones capable of making something specific happen. Take the Broad band language in the pork (I mean stimulus) bill, you can only get money if you were providing high speed service at the time the bill became law and the bill defined high speed as over 3 meg for wireless and over 5 meg service for wired service. It's actually a combination of up and down speeds but the 3 and 5 are the down sides and they show that the Time Warner, Cox, Att/sbc and existing large players are the only ones who will receive any of the money.

As for that one subsidy that can't be had. The federal government doesn't belong in the health care business. They have no constitutional authority in doing so and even if they did get into it beyond what they already are, the costs will increase exponentially and half of what you railed about will still be in the system. That's right, we still have people on medicare and Medicare who are denied treatments because the government considers them experimental or not cost beneficial. That happens in our own health care system, take a real look at the others, Canada, England's, even Germany's. Most of those countries all had a disproportional amounts of people seeking health care in other countries because their public health care at homes wasn't sufficient. In England, you could buy private medical insurance for a while now, you could use this or the public system, in Canada, they just started offering medical insurance in the private sector so if the wait is too long or a procedure was denied, they would take you to another country if needed to get the services you need.

Everyone talks about how much a drain it is having to pay their own medical expenses. What they don't understand is that they will still have to pay it. The only difference will be if they have any choices in the matter. Most of the people I see who want government health care can afford it anyways. In actuality, there are very few people who don't have health care because they can't actually afford it. The poor is generally under some government program, the middle class can generally pay their own but often purchase a big screen TV or something instead. Most employers pay for some but it's simply not their responsibility. Employers never paid in the past, some large companies had medical facilities and company doctors but those were few and far in between. The idea of medical benefits from the employers didn't come around until the 50's or so when the Korean war kicked off and there was a shortage of workers in the US. Employers couldn't afford to pay more so they started offering benefits to attract productive workers. It's just not really the employers responsability to pay this shit. And this shit didn't get expensive until the HMO act when the government started getting involved in the first place.

Use the wireless spectrum for intertubes (-waves?)

[jonaskoelker]

There is simply not enough space in the spectrum for us to do everything that we want to do.

In an ideal world, why not use all of it for Internet connectivity, get everybody on IPv6 (if need be), hand out IP addresses to people, and then let people do whatever wireless communication they need over IP?

Are hardware tcp/ip stacks expensive? Would it get too noisy? Would it require a switch to IPv6 (and if so, what's preventing that)?

802.11* is proof of concept that you can multiplex spectrum. It kinda' sucks, but you can have two laptops talk to the same access point and things don't break. Wouldn't the same apply to all other spectrum?

Anyone? Nope.

[raehl]

Not only critics say that, anyone who has ever run a business will tell you that ALL costs are passed on to the customers in one way or another.

Well, I run a business, and I won't tell you that.

I charge what people will pay. If my costs of providing the product go up, and the amount of money people are willing to pay does not, the costs come out of profits.

Generally, if you raise prices as a result of increased costs, you'll either make even less money than if you had left your prices the same, or you were not maximizing your profit in the first place.

The airlines just learned this, for example - they were forced to raise their prices as a result of cost increases, then realized they should have been charging more all along...

Or Not

[Nom du Keyboard]

Critics say the carriers will simply pass these fees through to consumers.

Or not, if the consumers say enough-is-enough and I refuse to be ripped-off any worse than I already am.

Just who are these people who voted for Obama, and did they really know what they were voting for when they did?

Or are they like the Democrats in Congress who voted for a Stimulus Bill that none of they could have read before they voted?

Ah...

[msimm]

Math hard!

depends on the market

[Trepidity]

Costs and prices are only indirectly tied. In free, non-collusive markets (which cell phones only sort of are), prices are set by supply and demand, not by costs to the seller. If it costs you $10 more to produce something, this doesn't automatically mean the market will offer you $10 more to buy it. Even if it costs everyone $10 more to produce something, it doesn't automatically mean the price will go up $10. It's possible margins will simply be squeezed instead.

Now of course if costs to the seller are more than the current market price, some sellers will either move out of the market or at least the low end of the market, reducing supply at the current prices, and thereby raising prices.

But that doesn't seem to be the case at the moment: cell-phone carriers are quite profitable. They could bear additional fees and still be profitable at current prices. Therefore, in a free market, it actually wouldn't result in price increases, just in profit decreases for the carriers (i.e. squeezing margins).

However, I will agree that, because of unofficial collusion between the carriers, in this case it's not entirely unlikely that they'll all raise their prices to try to maintain their current profit margins. That has nothing to do with free-market economics, though. In a competitive market with many independent, non-colluding suppliers, the fact that the carriers now had to pay an additional fee would not raise prices, unless it resulted in carriers actually becoming unprofitable at current prices.

Re:depends on the market

[maxume]

The competition is getting tighter. Boost is charging $50 a month for unlimited voice (and phone data), with no contract. Unless their coverage is abysmal, I would think that people will actually notice this, and that other carriers will have to do something to match it.

Re:depends on the market

[John Hasler]

Any increase in costs results in a decrease in profits. This is because any increase in price results in a decrease in sales, even for a monopoly.

this isn't taken by force, though

[Trepidity]

No company was forced to bid for the spectrum. If a particular corporation was not interested in using the public airwaves for its business, it's free to enter some other line of business, and not bid at the auction. It's not a tax any more than a business's services are taxes.

Re:this isn't taken by force, though

[atriusofbricia]

Although, it should be noted that the government created and enforced the market in the first place. So, one could argue that the companies in fact didn't really have a choice. Either bid, or go out of business. Do it or die. Is a do foo or die choice, really a choice? Sure, they could change businesses. Again, is it really a choice when another entity forces you to do it? Would you say you chose to give the robber all your money when he pulled a gun on you or you were forced to?

This of course isn't all that different to the idea that you 'willingly' submit to searches at the airport that would otherwise be a clear 5th amendment violation. Sure, you willingly went there if you were going on vacation or just visiting friends. In those instances you did have a practical choice of how to travel. On the other hand, if your boss says you have to be 2000 miles away the next day, you don't have a practical choice. In this case, did you willingly submit or did you submit because if you didn't you would have to quit or get fired?

depends on the market

[Trepidity]

An increase in costs to a producer can come from one of two places: increase in prices paid by consumers, and decrease in profit margin for the producer. How those work out proportionally depends on the market. A producer cannot just automatically raise their prices by the amount of a cost increase, if they operate in a competitive, non-collusive market.

Of course, since cell phones companies do routinely collude, and the market isn't particularly competitive, I expect them to just all in unison add a line-item on the bill directly passing the cost on.

Pretty much any corporate tax is a stealth tax

[George_Ou]

Pretty much any corporate tax is effectively a sales tax on consumers. If you sell a widget for $10 and the government taxes you an extra $2 to sell it, you're going to sell it for $12 to stay afloat.

All sales taxes are regressive

[George_Ou]

All sales taxes are regressive. All corporate taxes or "wind fall" taxes end up being sales taxes. Sales taxes punish the poor as a larger percentage of their income. Yet it is funny how people who always claim to be protectors of the poor end up being the ones who punish them the most.

So when a private company jacks up the price...

[californication]

So when a private company jacks up the price of a service or asset that it owns, knowing its customers have little choice to drop the service due to necessity or switch providers because of poor competition, it's capitalism at work; but when the government does the exact same thing, it's somehow evil? Those airwaves belong to ME, as well as every other member of the public. I am perfectly fine with the government jacking up the cost of licensing the spectrum if it'll help slow our descent into the shitter and make some positive changes for the future.

If you don't want to pay for the high cost of cellular phones, then dump the service and get a land-line. Considering that the cellular companies continue to make hefty profits even during this recession, if they decide to pass the buck onto you it's because they don't feel obligated to offer any assistance in a time of need to the very country that is their meal ticket.

Why buy when you can be forced to lease

[Anonymous Coward]

Surprise, Obama seems to be intent on strangling the life out of every marginally successful market in the country in the midst of a severe recession. So who voted for this creep, anyway?

No Way!!!

[dohzer]

Companies pass on expenses to customers? Who'd have thunk it?!?!

it's the two-way argument on price that's flawed

[Trepidity]

The political position of allowing profits and opposing taxes is perfectly fine to hold. It's the pseudo-economics of arguing in the contradictory manner the grandparent comment discussed that's the problem.

The "have it both ways" attempt is:

1. When discussing large profit margins, we focus on a market-demand theory of price: price is unrelated to costs, and is instead related to demand. If something costs $0.02 to produce, and is currently going for $100, that's just the market at work. If people weren't willing to pay it, it wouldn't cost $100.

2. When discussing costs, we assume that in the limit, market prices approach the cost of production (as classical economic theory holds), and therefore we can use a cost-determined theory of price: prices are determined by cost to the producer, so an increase in costs means an increase in price for the consumer. If something previously cost $10 to produce, and now costs $20, it will cost the consumer $10 more.

I.e., ignore the part that isn't convenient to the current political position, and ignore the exact opposite part in other situations.

In fact, both have an element of truth and falsity, but in both situations. Large profit margins are indeed "fine" if the market can bear them: there's no obligation to sell near cost, if people are willing to pay more. However, they're also suspicious from a classical-economics point of view: large profit margins ought not to exist, except as temporary aberrations or in markets that are non-competitive for some reason, because in competitive markets, prices ought to approach costs more closely in the limit.

As for argument #2, argument #1 shows its error: prices are not directly determined by costs, but rather by what the market will bear. If your cost goes up by $10, this does not magically mean the market will bear a $10 higher price. Costs can indirectly influence prices, of course, by changing supply. Perhaps at the current prevailing prices, if your cost goes up $10, you are no longer willing to sell the product. Supply decreases, and prevailing prices rise. But this is not always true; if we were in a situation where things cost $0.02 to produce and the prevailing price was $100, now that they cost $10.02 to produce, the prevailing price of $100 is still quite profitable, so there would be little reason for producers to exit the market. There would also be no particular reason that the equilibrium price ought to rise, if indeed it's set by supply and demand (as opposed to collusion among producers who agree to pass on their costs).

In short, if you believe in a perfectly efficient market, where the invisible hand always brings prices relatively close to cost, then indeed costs do get passed on, but large profit margins are suspicious. On the other hand, if you thing large profit margins are a perfectly fine feature of markets, there's no good argument that costs will necessarily be passed in: whether and to what extent they will be passed on versus simply squeeze profits depends on the market.

that's not really true at all

[Trepidity]

Extremely large profits in the financial industry failed to provide any incentive to manage those companies competently. Instead, they simply pulled in money so fat cats in industry can feather their own nest and rip off the first derivative of the economic system.

depends on the market

[Trepidity]

In general, cost increases (of which taxes are only one form) can either increase prices, or squeeze profits of producers, or both. Similarly, cost decreases can reduce prices, or increase profits of producers, or both. In either case, the answer "both" is the most common, because prices are relatively sticky, and determined by things other than purely cost to the producer.

Prices are set by both supply and demand, and cost increases only increase price if they reduce supply. In some cases, they don't (or don't significantly), because producers are willing to eat the difference and continue supplying the product, either because they still make a profit (albeit a reduced one), or because they think they can in the future and don't want to lose market share.

Take the large oil-price rises two years ago, for example. Part of the cost increase was passed on to the consumers in the form of fare increases, but not all of it was: some of it came out of airline profits, which were squeezed quite significantly, because the market would not bear fare raises sufficient to pass on the full cost.

not really

[Trepidity]

Consumers pay fees, expenses, taxes, other costs, and profits.

That does not somehow magically guarantee that a cost increase to the producer can be passed on to the consumer in the form of higher prices. It might take the form of reduced profits for the producer instead. It depends on how competitive the markets are, and how much above cost current prices are. Usually it's some mix of the two: profits are squeezed some (but not the full amount), and prices are increased some (but not the full amount). The same happens with cost decreases: businesses rarely pass the full decrease on to the consumer in the form of lower prices. Rather, some goes to the consumer, and some goes to increased profits.

This is why, for example, the airline industry's profits were significantly squeezed when oil prices went up: they were not able to pass the full cost increases on to the consumers in the form of higher fares, because the market would not bear sufficiently higher fares.

classical economics claims that won't happen

[Trepidity]

Your argument is sound as far as it goes: you're pointing out an oligopoly that is stable without collusion among its players. It happens that the current prices are considerably above cost, but as you argue, it's within each of their individual interests to keep them there, because any gain in grabbing more of the gravy would be offset by the loss of derailing the whole gravy train.

These are the sorts of situations that left-liberal economists generally believe call for regulation, because they're market failures: stable situations where competition fails to bring prices down to near costs, and instead results in oligopolies.

Classical economics counters, however, that regulation is not needed, because such situations will happen in pure free markets. While your analysis is correct looking at only the existing players, classical (and libertarian-leaning) economics generally rely on new entrants to a market being always a likely possibility. In this case, while it's not in the interest of any existing players to drop their prices (lest they upset the gravy train benefitting all of them), it is in the interest of outside players to enter the market and undercut the incumbents. They have no share of the gravy train to lose, so any gain in market share, at an undercutting price that's still above cost, is a net win.

Why doesn't that happen here? Essentially, barriers to entry. Libertarian-leaning economics argue that most such barriers are actually due to regulation: if cell-phones were less regulated, they argue, you would see dozens of new cell-phone operators, undercutting current prices and driving them down closer to cost. Left-liberal economists tend to find that an unlikely prediction, and think instead that cell-phones are a natural oligopoly, supporting a relatively limited set of players with large natural barriers to entry that make the spontaneous emergency of a highly competitive market unlikely.

You seem to have an oddly unorthodox hybrid of those two positions: you agree with the left-liberal economists that this is the natural outcome of the markets, but you don't think anything should be done about it.

Re:classical economics claims that won't happen

[Alex Belits]

There is nothing unusual about position you have described -- it's a typical "But the rich deserve their profits (and oh, I soon will be rich, too)!" position. In fact, it's more or less the official US ideology -- people promote interests of the rich because they expect to join them someday, and everything until that point is supposed to be some kind of preparation to life.

Re:classical economics claims that won't happen

[Shakrai]

You seem to have an oddly unorthodox hybrid of those two positions: you agree with the left-liberal economists that this is the natural outcome of the markets, but you don't think anything should be done about it.

Why should something be done about it? SMS isn't a critical necessity of life. Is society being unduly harmed or held back by current SMS rates? Somebody pointed out earlier that Verizon's profit margins are in line with other bluechip stocks. They aren't ripping us off. I'd suspect that a lot of the money collected through SMS charges goes back into network upgrades which benefit all of us. So what's the problem?

When people refer to SMS rate increases they are almost always referring to the ala carte prices anyway. The actual plan prices haven't changed that much in the last few years. If you want to be a Japanese schoolgirl you can get unlimited SMS plans ranging from $10/mo (Sprint) to $20/mo (Verizon) and in between ($15/mo w/T-Mobile). If you actually need unlimited SMS then it's a safe assumption that you send enough SMS that you'll wind up paying less than a penny for each one with such a plan. Again I'll ask, what's the problem?

Re:classical economics claims that won't happen

[Shakrai]

There is nothing unusual about position you have described -- it's a typical "But the rich deserve their profits (and oh, I soon will be rich, too)!" position. In fact, it's more or less the official US ideology -- people promote interests of the rich because they expect to join them someday, and everything until that point is supposed to be some kind of preparation to life.

And the opposite position is the typical liberal "the rich have bottomless pockets and need to pay their "fair share" even though they already pay 80+% of all Federal taxes, we need to finance the great society!" response.

Stereotyping works both ways Mr. 3 digit UID.

Re:classical economics claims that won't happen

[Alex Belits]

Actually we just don't care about the rich. "But they pay everyone muhhh-nay!!!" is a form of broken window fallacy -- if they didn't take those money away from others (in no way a single person can provide a service to the rest of society that is worth billions, so they certainly didn't earn it), other people wouldn't be poor in the first place.

Re:Use the wireless spectrum for intertubes (-wave

[Jott42]

Because the overhead would be prohibitive for a lot of battery-operated applications. The same goes for the size necessary to implement a complete IPv6 stack.

And there are services that can not use IPv6, due to technical reasons: GPS is one example. Emergency beacons is another. Some scientific applications do also need their own frequency allocations. The same goes for the military.

In summary: frequency application strategies are not as simple as the proponents for "open spectrum" assumes. Cognitive radios comes with huge overheads in size and power, and would make a lot of wireless applications we use everyday impossible. (Typical example: remote control car locks.)

carriers would be hit with huge annual fees

[Anonymous Coward]

Critics say the carriers will simply pass these fees through to consumers

No, no, no, you are so wrong.

The wonderful benevloent CEOs will pay the fee personally out of their bonuses.

Newflash

[dheltzel]

Critics say the carriers will simply pass these fees through to consumers."

Wow, a newsflash from Captain Obvious! What else would they do, cut executives bonuses? Of course they'll pass it on, with some bureaucratic name like "Regulatory Recovery Fee". As good citizens we've been programmed not to question such things, and since this is a monopoly service we can't switch to the other company.

They charge as much as customers will pay

[js_sebastian]

Pricing in markets with weak competition is not about costs. It is about estimating how many customers will buy your product/service as a function of the price tag, subtracting costs, and choosing the price that maximizes profits. US celular services seem to be so overpriced that the costs are almost irrelevant.

The best thing would of course be to open the market to more competition by letting anyone offer cellular services. That doesn't work because the spectrum is a limited resource. So the next best solution is to auction rights to that limited resource to whoever will pay most. If you do this right, like the UK 3g spectrum auction was done, you make a LOT of money, that comes out of the cell phone companies expectation of future profits.

Free.

[crhylove]

I've never understood why we couldn't have a wifi mesh network that was completely free. If every home in the US had a wireless router set up to act as a free and open peer to peer network server, couldn't we just have all our internet and phone for free? Almost every house in my neighborhood has wifi already. Can't we just unlock them all and get wifi phones?

May not be a fee on wireless carriers

[grantus]

This may not be a fee on wireless carriers at all, but on broadcast spectrum, according to some sources.

http://www.thestandard.com/news/2009/02/27/obama-proposes-spectrum-license-fee

The budget blueprint, released Thursday, provides no more details about the fee. Despite some speculation to the contrary, it may not, however, be a fee on wireless voice and data spectrum, but on spectrum used by U.S. radio and television stations.

The proposed spectrum license user fee, which would be $200 million in 2010 and $300 million in 2011, takes up one line on page 126 of the 142-page budget blueprint.

A similar fee, proposed but not enacted in past federal budgets, has not been for wireless spectrum that companies have purchased in auctions from the U.S. Federal Communications Commission, but on TV and radio spectrum that's been allocated to broadcasters, said a government source familiar with past FCC budgets.

Dumb

[Anonymous Coward]

"Critics say the carriers will simply pass these fees through to consumers."

Proponents, too. How old _are_ you, Beavis?

Corporations ALWAYS pass all costs through to their customers. All taxes ultimately fall on the consumer in the form of higher prices.

MOD parent up

[Anonymous Coward]

For an actual, rational argument ....

good

[jipn4]

Spectrum is a scarce resource, and to make the best use of it, it should go to companies willing to pay the largest amount of money for it. Otherwise, you're going to have companies hogging valuable spectrum with outdated technologies, and still charge whatever they can get away with.

As for price increases, T-Mobile has 32 million customers. $550 million/year in license fees ends up being less than $2/month/customer. The sky isn't falling.

And we need some way to pay the debts that GWB has racked up.

Re:good

[rdean400]

These fees are being sold as a fee on the carrier, but that fee will be applied as a new surcharge on everyone's phone bill. The interesting thing about fees is that they do not operate as the progressive tax that Democrats typically favor. They operate as a fair tax -- applied uniformly based on consumption. The only way they get away with it is that people don't think it through, so they think someone else is getting the tax.

I agree with the point of the article that applying huge fees to the wireless spectrum will create a huge barrier to entry for startups that don't have that kind of money. For the U.S. to remain competitive, we need to create an environment that nurtures the small inventor who might have a big idea but lack the funds to bring it to market.

Re:Anyone? Nope.

[idiotnot]

I charge what people will pay. If my costs of providing the product go up, and the amount of money people are willing to pay does not, the costs come out of profits.

And if your business is privately-held, you can do this without serious ramifications. If you're the CEO if a publicly-traded company whose compensation is based on stock price, and your stock takes a 40% hit because your profits took a 10% hit (not unheard of), what do you do?

The value of WIC

[mcrbids]

WIC isn't for the parents, it's for the children. Many poor folks, when given the choice between junk and/or decent food, will pick junk first and only buy decent food if they have their beer and smokes first.

The result is that the kids end up under-nourished. Kids need lots of calories, calcium for strong boned and teeth, fiber, vitamins etc. If they don't get these things as kids, their cognitive and immune systems suffer lifelong, at great cost both to the individual and to society. (idiots rarely get paid well)

WIC can only be reimbursed for staples that poor tend to skip when things are tight: mil cheese, bread, and the like. The state actually spends very little on WIC and the return (in tax revenues) is high.

My wife and I took advantage of WIC once upon a time, many years ago. It was a tremendous help that we took advantage of for about a year until I was able to get my career off the ground.

Yes, to some extent, WIC and other welfare is (ab)used to fund junk. But the alternative is that the kids of these crappy parents simply do not get enough to eat, and that's bad for everyone. (including you)

Closed systems should pay more

[Anonymous Coward]

The fee should be much higher for closed systems
and lower for open systems. Open systems serve the public interest and can be used by anybody.

Operators of closed systems should pay dearly for their profits.

Re:Anyone? Nope.

[Anonymous Coward]

Nothing. If you could make more money charging more, you'd already be charging more.

Passing the fees to customers

[crmartin]

Actually, that could be better phrased as "idiots imagine those fees won't be passed on to the customers."

A little perspective is in order here.

[sjames]

The amounts of money we're talking about here amount to $2-$5 per year per phone. By the time the providers get done, it may look like a lot more, but that's about the real amount.

It's hardly worth a bunch of uproar!