AT&T aggressively moving against unauthorized tethering
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This is going to be one of the biggest casualties of a lack of net neutrality on wireless networks. Like TFA says, there should be no reason you can't consume the data you have purchased in any (legal) way you see fit.
You're certainly not hiding anything from the carrier, who can easily see that your smartphone is pulling down way more data than a normal user on their network.
The reason AT&T charges you to tether probably has little to do with technology and everything to do with segmentation. They have two choices. They can raise their data rates for everybody and attrit customers to other providers (or to less lucrative featurephone packages). Or, they can find ways to charge higher rates to less price-sensitive customers. You are a person who wants to plug their computer into their phone and use it to get on the Internet from the Acela train. There are not that many of you, and you are uniformly wealthier than most other segments of AT&T customers. Finding a way to charge you for that behavior is marketing 101.
If you're an entrepreneur, it's good that the rest of the world sees things AT&T's way (to wit: when you agree in a contract that you're going to use a service in way X and not in way Y, the provider is within its rights to enforce that contract). It's this force that allows you to charge money for things and thereby make a living.
If you're anyone earning the anomalously high income accorded to technology professionals, you're run a slight risk of hypocrisy complaining about this. A complex web of similarly nerd-arbitrary contracts keeps the money flowing through the conduits and manifolds that eventually feed your bank account.
A lot of people would argue that beyond internet access, any more nuanced distinction is just profiteering. Imagine the power company telling you to turn off your computer because you only have an "Unlimited Light and Heat" power plan.
There are two clear reasons why the power company can't segment their market per your example. The first is that power companies are regulated utility monopolies that have to respond to state governments. The second is that they lack the technology to differentiate between power usages. Even so, if you talk to energy-intensive businesses, you'll find that there is customer segmentation in electrical power.
This shouldn't surprise you, because there is arbitrarily segmented pricing in everything from hotel rooms to canned tomatoes to beer to office space to cars to computer chips.
This isn't entirely true/relevant.
The distribution network is regulated because (rightly) we don't want to have everyone running electric cables everywhere. In CT, you cannot choose your electricity distributor, but you can tell your electricity distributor who to buy your electricity from. (They call you up and tell you what their price per mwh is, and you can pick that company or a different one. You can also choose based on what source the energy is coming from solar/coal/nuclear etc.)
Similarly, radio bandwidth is regulated (auctioned to the highest bidder), because there are only so many frequencies available.
It would be very difficult to have a startup competing with ATT or Sprint, for example, because of the exorbitant cost of buying a chunk of spectrum to use (aside from hardware cost).
Maybe cell networks/bandwidth should be better regulated, based on a similar model to Connecticut's electricity, where the data is routed to a cell tower run by a local, government regulated monopoly, and then the actual internet connectivity is provided by different suppliers.
It seems that auctioning bandwidth has lead to monopolies that aren't really what we all want.
It's also unclear to me how much this has to do with "monopoly power" and how much it is simply the case that mass Internet access is an extremely capital intensive business that will always be led by large companies.
If you look here: http://wireless.fcc.gov/auctions/default.htm?job=auctions_al...
You can see the amount of money that goes into the auctioning of the bandwidth. You have to pay in the millions of dollars before you can build a single tower.
It is a capital intensive business, and I don't suggest otherwise, but it seems to me that there is absolutely no incentive for any of the major players to innovate, as the market is locked down as soon as a chunk of bandwidth has been bought.
It would be nice if there were another way of structuring it to encourage competition in this particular market. One possibility might be to have a local distributor, and then competing vendors that work through that distributor. That is just of the top of my head, so I'm sure there are problems with it (I can certainly think of a few).
My dictionary suggests that "profiteering" is a reference to price fixing, gouging, and other unsavory business behaviors -- not market-based pricing.
Moreover, data is data. Charging more for one kind of bit than another is ridiculous.
power companies are regulated utility monopolies that have to respond to state governments
And why not communication companies, then (beyond the small degree they're regulated)? Obviously there's a need.
This shouldn't surprise you, because there is arbitrarily segmented pricing in everything from hotel rooms to canned tomatoes to beer to office space to cars to computer chips.
Every type of product and service you mention has an open market and real competition. If I don't like the price of Heineken I can just buy Coors (presuming I think they're of equivalent quality).
AT&T, Verizon, and their cohorts have the mobile market locked up -- no other company is going to come along any time soon and offer carte blanche data access, because the whole market is engaged in "wink-and-nudge" collusion. They don't have to actually conspire; they just know they can all get away with the scam if they all pull it.
I didn't say that they did. I said that they would have to IF the FCC had included wireless telecoms in its net neutrality rules.
> There are not that many of you, and you are uniformly wealthier than most other segments of AT&T customers. Finding a way to charge you for that behavior is marketing 101.
So they are charging based on what the market will bear, not based on their costs. This is symptomatic of a lack of competition in the industry (which is the cause of most of these problems in the first place). Price discrimination is not possible when there is competition.
Competition and cost-based pricing are entirely orthogonal issues. There is intense competition in the market for (say) beer, but it takes the form of a marketing dogfight of changing product attributes and highlighting instead of race-to-the-bottom pricing.
You're missing the point. It's not like you can change the fact that telecoms (with current technology) tend towards a natural oligopoly. All you can do is rein in their market power via legislation.
> Competition and cost-based pricing are entirely orthogonal issues.
Not at all. Fundamental economic theory states that in a pure monopoly, sellers have the ability to set the prices, so they can price discriminate and charge each customer the maximum he will pay. In pure competition, the price will eventually reach the marginal cost.
Cost-based pricing isn't symptomatic of commodity markets. Cost-based pricing and commodity markets are symptomatic of pure competition.
> There is intense competition in the market for (say) beer, but it takes the form of a marketing dogfight of changing product attributes and highlighting instead of race-to-the-bottom pricing.
You're conflating the competition's intensity and perfection. As with beer, there's also intense competition among telecoms ("Only the AT&T iPhone lets you talk and browse the web at the same time", "Verizon has 5x better coverage than AT&T"). That doesn't change the fact that there's an oligopoly (both in beer and in telecoms). The fact that the products are not homogenous across the market further emphasizes this.
Sprint seems to have taken a middle approach. They just charge all of their smartphone customers a 'premium data charge' of $10/month. This is a lot less than a traditional 'tethering plan' would cost, and my smartphone came bundled with the Sprint Hotspot app, so I can tether if I want to.
This seems fair to me (even in nerd-arbitrary logic), since the gap between computer and smartphone is so narrow, and the gap between smartphone and dumbphone is so wide.
Sprint segments their users as non-smartphone vs smartphone (+$10/mo)
Other carriers segment their users as non-tethering vs tethering (+$50/mo)
Non-smartphone $15 Smartphone $25 Smartphone + tethering $45
It is, in the sense that they have to go out of their way to make it not so.
Finding a way to charge you for that behavior is marketing 101.
Sure, all companies would like to extract consumer surplus by charging more and providing less, or in this case providing nothing. That doesn't mean as customers we should congratulate them on their brilliant strategy.
Not just business travelers. You've identified one of the few industries even more disliked than wireless carriers: http://www.theacsi.org/index.php?option=com_content&task.... Note that the top ratings are in industries where you generally exchange money for a good or service without subsequent micromanagement of how you use it.
And they do provide a more or less generic fungible data product with the tethering plan. The price is $10/1GB data beyond the included data. It may be overpriced, a function of the scarcity of mobile bandwidth with current technologies and the lack of competition in this market in the US, but I find it much better than providers who only have an unlimited product combined with either insane overage charges or vague threats about cutting you off if you consume too much data.
Let's geek out though, does anyone know HOW they are determining who is tethering? Is it just excess data use that is flagging your account? Are they watching packets? If you use a VPN would they not be able to detect tethering use?
They are discriminating against people who hook up unauthorized computers to their network. That's outside the scope of net neutrality.
AIUI, Net Neutrality can be defined as treating every endpoint the same. My connection to Google, Yahoo and Bing should be exactly the same, as what you said. But does it really matter which device I connect to Google, Yahoo or Bing with? No. My phone is still an endpoint on the internet, as the only difference between a starting point and an ending point is the direction.
You might have a point arguing that bad network users (spammers, zombies and over-consumers) should be discriminated against, but that is not a neutrality rule, since those users did something to degrade the performance of others. Blindly saying that an iPhone is not allowed on my network is exactly the same as saying no one is allowed to connect to Facebook on my network.
In this case though, and especially the Reddit thread early this morning that seemed to spark this debate, users were showing consumption habits of 150GB+ per month on their 3G connection. I have no problem enforcing some restraining rules against them (like throttling over a certain number). But claiming that every packet coming from my laptop tethered to my phone should be charged at a 15% premium compared to the ones that come from my phone directly is ridiculous and is a violation of net neutrality.
It would make sense if Verizon and AT&T had these patterns of interaction (from their perspective). It sets a precedent for AT&T to make changes that are good for profits, and Verizon following suit, thus magnifying the effect. Since they are the two biggest providers of services in the US, it makes sense that they'd have an implicit agreement to collude.
Although it's hard for me to disagree with their offering tiered services (It makes sense from a social-surplus standpoint with respect to monopolies and monopoly pricing), as someone else already mentioned, this is symptomatic of the lack of competition (which also, to an extent makes sense because of the natural-monopoly nature of the industry).
In short, this is a result of a market failure (http://en.wikipedia.org/wiki/Market_failure) where there are a few possible solutions:
1. The government steps in and offers a competing service, at marginal cost. But who says the government can do it better, or even at parity?
2. The government auctions off a contract (Say, in terms of $/year) to a provider, and subsidizes them (at the unit level) such that marginal revenue = marginal cost. The good thing is that the final price of the auction in a competitive market (no collusion, implicit or explicit) incorporates the benefits of the stream of subsidies and monopoly profits. As a result of this, we can achieve a socially optimal (i.e. pareto efficient) outcome. The problem is that it's hard to know MC for sure.
3. The government imposes price caps slightly above marginal cost. Again, what's the marginal cost?
4. Break them up into little chunks. However, this would eliminate a lot of the benefits of natural monopolies and economies of scale.
All of them have some problems of their own, not to mention headwinds against political action
Right now the expense of complying with regulation alone is enough to make most potential competitors balk. Combine this with the fact that it takes years of legal hoop-jumping and other paperwork before you can even create a truly independent provider, and it becomes pretty hard to start a new cell network.
This specific form of market failure is a failure in market structure. Of course regulatory failures exacerbated this problem (or at least didn't fix it), but it's not the main "cause" of the failure, by which I mean "would it naturally without any regulation at all?"
Regarding your second paragraph, yes, that is a regulatory burden and it's true that it increases the barriers to entry into the industry, and I suppose that's an argument for why regulation caused market failure. But is it the main cause? I think it's because this particular market structure is inclined to a natural monopoly (or something close) because of the high-fixed-costs nature of the business.
One interesting variation would be for the spectrum holders to sell only wholesale service. They would then be competing on technical attributes such as reliability, while the retailers would be competing on customer service and bundled applications. Some retailers could even offer devices that worked transparently with multiple wholesalers, allowing retailers to switch wholesalers, instead of being locked on like today's virtual carriers.