NNSquad - Network Neutrality Squad
[ NNSquad ] Re: Cancelling Nexus One triggers TWO "early termination fees"?
This is why I say that price is a story you tell. The goal is to charge
enough to cover the costs (and the rest is gravy). There isn't simple
mapping of price to the cost of a given element. You use an accounting model
in an attempt to figure out what you need to charge based on guesses about
variable costs, market size and external value.
What makes this work in the real world is effective competition and some
degree of transparency which allow pushback. You also have the problem of
elements which are not valuable in and of themselves and thus a funded as
cost centers or infrastructure in order to enable other activities.
The problem is that in the current system we have silos which own the value
chain and treat users as hostages to prevent churn. If we have to patch it
without fixing the larger dysfunction treating it as a loan at least gives
some transparency and allows for make/buy decisions.
But we do have an effective solution (as I argue in http://rmf.vc/?n=UAC) -
decouple the transport from the services. We could still get subsidies just
as GM created GMAC to finance cars (but then seems to have decided to
finance everything). We would also get far better devices instead having
them limited by the needs of a carriers.
Remember that the current system has other collateral damage - my Nexus
cannot take advantage of ATT or Verizon or Sprint towers in the US. The
termination fees are just one part of the problem.
Having a common transport also removes the problem of churn - you don't have
to switch carriers just to get a new feature or different coverage.
[ Technical correction: The Nexus One can indeed home or roam to
AT&T, but in EDGE mode. In 3G mode domestically the phone is
restricted to T-Mobile due to band layouts.
It's certainly true that most of the world must chuckle
at the twisted evolution of U.S. cellular, particularly the
GSM/CDMA dichotomy (though from a historical standpoint, it's
not difficult to understand why it occurred).
History matters. In fact, history -- the existing structures
of Internet infrastructure, ownerships, laws, court rulings,
and so on, are what I believe makes Bob's "Ambient Connectivity"
concept so problematic as a general form solution in the real
world today.
True, if we could wipe the slate clean and start all over the
odds are we'd do Internet infrastructure differently based on
what we know now. But we can't do that, and Internet users have
important short- and medium-term concerns that Bob seems all too
willing to dismiss in preference for a more "blue sky" long-term
vision.
And I have yet, for example, to understand what incentives his
plans would offer the municipalities that would need to be so
directly involved in Internet operations, when so many are
struggling at this time to even provide basic life-critical
services to their residents. That's not to say that some cities
won't want to go ahead, and more power to them if they feel
they can make it work. But for most of us, holding our
breaths for this would likely not be a great idea.
-- Lauren Weinstein
NNSquad Moderator ]
-----Original Message-----
From: nnsquad-bounces+nnsquad=bobf.frankston.com@nnsquad.org
[mailto:nnsquad-bounces+nnsquad=bobf.frankston.com@nnsquad.org] On Behalf Of
Barry Gold
Sent: Tuesday, January 12, 2010 19:57
To: nnsquad
Subject: [ NNSquad ] Re: Cancelling Nexus One triggers TWO "early
termination fees"?
Wes Felter wrote:
> IMO it's time to treat subsidized phone agreements as what they really
> are -- loans. Sure, this gets into banking regulation, but shenanigans
> such as the Google/T-Mobile issue are exactly why those regulations were
> invented. At least with a loan (1) you know exactly how much you have
> left to repay and (2) you can get out of the loan by repaying the
> remaining principal (not more).
This sort of regulation is tempting, but it could make future
development in the industry economically unfeasable.
History is full of examples where you cannot sell something for enough
to cover development and production costs, if the price is paid in a
lump sum. So part of the price is folded into the future, either by a
contract (as with ETF fees) or by technological means.
Case in point: the safety razor. Getting these right required
considerable development expense, and they were also complex enough to
be expensive to produce. The breakthrough that made Gillette successful
was to sell the razor at a loss -- but the blades to fit the razor were
covered by King Gilette's patents, so you had to buy them from Gillette.
And the blades were sold way above the cost of manufacturing them
(although still fairly cheaply).
Thus, by the time the main body of the razor wore out and needed
replacement, the user had "paid for" the razor by buying blades. Of
course, once the patent expired he had to introduce a new, "improved"
razor with a different blade design.
http://en.wikipedia.org/wiki/King_Gillette
http://en.wikipedia.org/wiki/Razor_and_blades_business_model
The same thing goes on in the cellphone market. End-users will not pay
the "true" price of developing and producing a cell phone, so the phone
is sold at a discount, with the rest of the cost recouped through profit
on the usage plan.
If we insist that the phones be sold with an explicit loan, the
paperwork (already excessive for a consumer product IMHO) will multiply.
And you may get "sticker shock", where the user sees the price and
refuses to buy, even though the total amount to be paid (including
interest) is less than the total to be paid under the phone+plan+ETF
arrangement.
There _are_ some good things about the Nexus phone. At least you _can_
buy the unlocked phone and use it on any available system, without an
Early Termination Fee. When I first started shopping for cell phones,
it seemed that the _only_ ones available were tied to plans with ETFs,
so it wasn't even possible to just pay the "full price" and be able to
terminate or change your plan without a fee.
I don't know. It's possible that good marketing can overcome this
problem. After all, most people "can't" buy a new car for all cash. So
advertisements talk about "so much down and so much per month" , either
financing or a "lease" deal. (An "auto lease" is really a purchase,
plus a repurchase--assuming the car is still in good shape--and a loan
to cover the difference between the purchase price and the buy-back
price, as well as the time value of the money between the two events.)