A testament to our very own irrationalities

Cellphones: we all have them. Have you ever thought about the ridiculous prices that cell phone companies force us to pay? My family pays $80-90 a month for like 1000 minutes and 3 lines or something like that, plus the $10 a month extra that my brother and I add on for only 250 measly text messages each. You know how frequently people text nowadays!? 250 really gets you nowhere, and text messages are essentially costless to a carrier!

Anyway, I digress. The NYTimes recently ran an article on cell phone pricing, a topic which even confuses economists. After all, most businesses want to encourage higher usage of their services by offering lower rates for increased usage, a principle cell phone companies diverge on when they charge huge fees for overage.

I found the psychological effects on consumers due to the pricing models really interesting, though. As the article states, "those high charges for going over your allotted minutes, for example, are designed to cause you enough pain that you will switch to a plan with a higher regular fee." That's actually exactly what happened with my mom, as we went crazily over one month (to the tune of around $200) due to completely unforeseen circumstances, and my mom's upped our plan ever since by $30. We never come close to using all of our minutes.

Some other highlights that I really enjoyed from the article:

• "When companies introduce certain discounts — like Sprint's recent offer of free calling to any mobile number — the effect is that customers often switch to more expensive plans."
• "Americans spend more money each month on their wireless bills than people in any other country." (I would just like to add that our cell phone capabilities are also way behind many other developing nations' like Japan)
• Cingular's introduction of Rollover minutes actually ended up encouraging people to buy larger plans. "It turned out that people were happy to buy extra minutes if they knew they could keep them, rather than having them expire."
• Since people have been texting more and talking less, "revenue from voice plans has fallen 31 percent since peaking in 2003. To fill that hole, the carriers raised the price of a text message from 10 cents to 15 cents, and later to 20 cents. These fees provided nice cash, but as with the voice charges, the main purpose was to persuade customers to subscribe to text-message plans" (they totally got me on that one, which I'm still pretty bitter about)
• And then there's this whole thing on the pricing of the iPhone and how consumers essentially screwed themselves (well, just a little) on it which is also pretty interesting. I'll let you read the article for that part.

I wonder if AT&T wanted this to happen...

So I was going into New York City a few days ago and I saw this huge billboard for Sirius XM radio... on your iPhone. The ad was for an application created by Sirius XM for subscribers to listen to their satellite service over AT&T's cellular network on their iPhones.

And then I started wondering: did AT&T want this to happen?

When AT&T set up its 3G network, and when AT&T signed the deal with Apple to be the exclusive carrier of the iPhone, did it think to itself "I want millions of users to one day take up our cellular bandwidth and stream Youtube videos over our system and listen to radio over the air, and I want to have bus lines use our network so they can provide Wi-Fi cross-country to their customers, and... etc. etc."

I know 3G networks can handle a lot, but can it really handle that much? In 2007, iPhone users consumed 5 times as much data as the average AT&T consumer, and I'm sure that number's increased quite a bit considering we're in 2009 now.

Also going through my mind right now are "Tipping Points," since, well, I'm currently reading the book by Malcolm Gladwell. Gladwell defines the tipping point of a social trend to be the time at which the popularity of the trend suddenly exponentially explodes. A good example is the one he uses with fax machines. From Tipping Point, p. 12 by Malcolm Gladwell:

Sharp introduced the first low priced fax machine in 1984, and sold about 80,000 of those machines in the United States in that first year. For the next three years, businesses slowly and steadily bought more and more faxes, until, in 1987, enough people had faxes that it made sense for everyone to get a fax. Nineteen eighty-seven was the fax machine tipping point. A million machines were sold that year, and by 1989 two million new machines had gone into operation.

I wonder if the iPhone's hit its tipping point yet, but I doubt it. I'm seeing more and more people get smart phones whether they be Windows Mobile devices, Symbian devices, Android based devices, or iPhones, but it hasn't been that huge explosion that the fax machine saw in 1987. I'm sure there will be a tipping point, though, and when that happens, will the cellular networks be ready for it?

I guess on another note, I'm also curious as to where cellular companies see themselves going as internet providers. In 10 years, do they hope to be the next Comcast or Cablevision and be the primary internet provider for families? They're already making a pretty compelling case to do so.

Sprint's offering a $1 netbook with a two year subscription to their cellular broadband service. That's a pretty nice deal for people like my mom, who I would say is the average computer user. She uses her computer mainly to surf the web, write a few emails, maybe a Word doc or two, and that's pretty much about it. For only $30 a month more than what she's paying now for Cablevision internet, she can browse the internet anywhere on a lightweight, compact, netbook that she can carry in her purse. She pretty much gets the netbook for free (a $400 value, which covers half of the cost difference between getting Verizon Wireless broadband and Cablevision broadband), and she gets a free computer upgrade every 2 years. That's pretty sweet.

Anyway, back to my original questions: do wireless providers see themselves becoming primary internet service providers in the future? Can 3G networks (probably 4G by that time) handle all that demand? And has the tipping point for smart phones been reached yet?

I don't know the answer to those questions, but I wish I did!