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There’s good news and bad news about your phone bill Add to ...

I have never met a Canadian who thought their phone bill – wireline or wireless – was too low. Complaining about our telecom costs could be our third national sport, right after hockey and lacrosse.

So I have some good news: big chunks of our phone bills are about to go down. Here's why.

We need to start off with the fundamental economic concept that, over time, the price of undifferentiated goods or services in a free market tend to rise or fall along with the cost of making them, plus a competitive profit for the manufacturer or provider. In the short term, various frictions can prevent prices from declining but over a long enough time that almost always happens.

All around the world, telecom costs have suffered many of those frictions. They have faced regulatory issues, legacy pricing structures, the need to balance urban and rural phone service, varying amounts of competition and a lot of new networks and services that kept changing the competitive and pricing dynamic.

But as the frictions dissipate (which can take time) you need to look at the cost to the phone carriers of providing certain services, and the prices they charge consumers for those services. In telecom markets around the world, there are two big baskets of services where the cost and price don’t even come close to matching.

The first big basket is filled with things that cost the carriers practically nothing. We are all customers of companies that provide us with a connection to a modern network – wired or wireless, phone line or cable, it really doesn’t matter. Once we have that connection, the cost to the carrier of moving a small number of bits -- such as our voices or a text message -- around the network is essentially zero. They can move them to the other side of the planet or from one network to another for nothing. So long distance charges for example, have over time declined, and should continue to do so.

Carriers may not care about distance, but they do care about how many ones and zeros they have to transport. Too many and the network gets clogged and they need to spend more money on new pipes. But if a service uses fewer than 30 kilobits per second (such as voice and text messaging do) then it is basically free again. So voice as a service and text messaging prices are also headed down.

Globally, charging for a single text message can be very profitable for wireless carriers. There are places where I can buy an incremental gigabyte of data for $2, or 0.2 cents per megabyte. Or they can charge 15 cents per SMS message – which works out to $7,650 per megabyte, or about 600,000 times as much per bit.

All of the above is well known by carriers. All over the world, canny mobile and fixed line subscribers are taking advantage of plans and technologies that see the price of voice, the price of long distance and the price of texting fall to virtually nothing. Skype is perhaps the most obvious example: once you’ve got internet access, the cost to the service provider for voice and instant messaging can be covered by a few banner ads. But even here in Canada we are seeing new telecom entrants and the incumbent wireless players offering inexpensive talk-and-text plans.

The second bucket where cost and price don’t match and that’s data connection. While buying a megabyte of text messages for the average person’s monthly salary is unaffordable for most consumers, selling unlimited data is unaffordable for most carriers. Volume of data transported is what costs carriers. Until recently, very few customers wanted (or needed) to send and receive gigabytes of data over a cellular network. That has changed, with now well-known consequences to various carriers’ networks. Not surprisingly, all-you-can-eat plans are becoming a thing of the past.

By this time next year, truly unlimited wireless data plans will not exist at any major carriers, anywhere in the world. Smaller players and new entrants will be able to offer unlimited plans, but only while their networks remain under-utilized. Once congestion becomes an issue – and it always does – the buffet line will be closed and data prices will rise.

The shape of our future phone bills look pretty clear. We will pay for a wired or wireless connection, and a certain amount of data at a certain speed. What we do with those bits is our business, but voice, long distance and text will be included in our monthly package, regardless of how many calls we make, where in the world we make them, or how much texting we do.

That evolution will take years, maybe even decades. There are complicating factors, like 911 services, access fees, contracts for those who bought subsidized phones and the Canadian-specific challenge of providing services to remote places in a big, mostly empty country. But we will get there, and the roughly $50 per month that I spend today for voice, text and LD will be zero, or practically zero.

I wonder what I will do with all the money I save?

 

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