Let the Market Work

Walter Mossberg writes the personal technology column in the Wall Street Journal that appears every Thursday. He’s one of my favorite writers, and he has tremendous influence. It was he who first complained about all of the half-baked software that comes on new computers – you know – the stuff that it takes half a day to get rid of. He calls it “crapware”, and the individual programs “craplets”. Manufacturers have responded – you can now get machines from Dell that are free of such nonsense. Thanks to Walter.

In yesterday’s Wall Street Journal, Mossberg wrote a piece called “Free My Phone“. It’s about the cell phone providers and their protectors in the government. It’s about how we are forced to marry our cell phone provider, use their phone, sign up for contracts and pay termination fees.

When I was younger we had a choice of one carrier (Ma Bell), and three telephones: the desk model, a wall phone, and the “Princess“, which represented technology gone wild. We had to buy our phones from Bell Telephone, and they came to our houses and installed them, and crawled up the pole to make sure they worked. If we wanted a second phone, we had to pay for an additional jack. We paid additional fees each month for an extra phone, so consequently, most people I knew had but one telephone. A kid with a phone in his bedroom was usually a spoiled brat. Some rich kids had their own phones and phone numbers.

The old monopoly was broken up – consumers were allowed to buy their own hardware, and new designs and software and innovation followed. Today the phone company delivers a line to your house, but whatever else you want to do – jacks and outlets and faxes and hardware, is all your own business. As it should be.

But the cell phone business is constructed on the old Bell Telephone model. Mossberg calls it the “Soviet Ministry Model”.

Like the old bureaucracies of communism, they sit athwart the market, breaking the link between the producers of goods and services and the people who use them.

To some extent, they try to replace the market system, and, like the real Soviet ministries, they are a lousy substitute. They decide what phones can be used on their networks and what software and services can be offered on those phones. They require the hardware and software makers to tailor their products to meet the carriers’ specifications, not just so they work properly on the network, but so they promote the carriers’ brands and their various add-on services.

It wasn’t but a couple of years ago that we didn’t even own our phone number, so that switching cell phone carriers entailed changing business cards and stationery too.

The Apple “iPhone” is the first phone introduced that was designed without carrier oversight. That’s because Apple is big and powerful – but even so, iPhone users are forced to sign a contract with AT&T to use the device, and are not free to add their own software (though this will change next year). For almost all other phones, they are exclusively marketed by the carriers. We have to sign up for periods of one or two years to use them. We have to pay early termination fees to switch carriers. When we do so, we have to buy new phones, as the old phone will only work with the old carrier.

It’s the Bell Telephone model, just like the good old days that weren’t so good.

The carriers defend these restrictions partly by pointing out that they subsidize the cost of the phones in order to get you to use their networks. That’s also, they say, why they require contracts and charge early-termination fees. Without the subsidies, they say, that $99 phone might be $299, so it’s only fair to keep you from fleeing their networks, at least too quickly.

But this whole cellphone subsidy game is an archaic remnant of the days when mobile phones were costly novelties. Today, subsidies are a trap for consumers. If subsidies were removed, along with the restrictions that flow from them, the market would quickly produce cheap phones, just as it has produced cheap, unsubsidized versions of every other digital product, from $399 computers to $79 iPods.

Libertarians and conservatives often seem to think that people naturally gravitate towards free markets, and that government intervenes. But more often manufacturers want regulation and protection from competition. Verizon is not banging down the door to change the current system. They know it by another name: “business model”. The battle to change it will be one against entrenched interests, an alliance of corporations and government against consumers.

As Mossberg reminds us, the current cell phone market model is a hangover from a time when they were a novelty. Now that we all have them, it’s time to open up the market. We should be free to buy our own hardware and use it on any network we please. My current carrier, Verizon, would deliver my signal and no more, just as Qwest does with our home phone. Beyond that, what equipment and software I use would be my business and no one else’s.

It’s time for the free market to mess with the phone monopolies again. There’s nothing but good news for the consumer in a deregulated environment.