By: Gigaom
Thanks to telecom oligopolies, it’s always raining in the cloud
Even using a smartphone in fairly normal ways -- checking your location with a web-based map, sending email or text messages, uploading photos and so on -- can result in massive charges when it is done while roaming internationally, thanks to the market control that telecom carriers enjoy.

There are plenty of ways to become outraged about the state of affairs in global communications, but one of the easiest is to travel to a foreign country and try to use your smartphone like a normal person — in other words, check your location on a map, get your email, send text messages, take photos and upload them, check into location apps, and so on. Depending on your carrier, the penalty for doing so ranges from serious inconvenience to something that resembles being mugged in a dark alley. In order to avoid this, you have to act like a criminal yourself by hacking your phone, or pay even more fees so you can get around using your carrier’s network. Welcome to the telecom industry’s version of the cloud, where it’s always raining.

Traveling to the United States from Canada (where I live) is bad enough, unless you have a special plan from your carrier that charges you only slightly more than the usual excessive rates. But going to Europe — which I did for GigaOM’s recent Structure: Europe conference in Amsterdam — makes even that look like a day at the beach. The typical carrier plan for international travel is almost ridiculously expensive for even trivial behavior, and if you want to make use of virtually any cloud-based services, even long-established ones like email or messaging, you will pay rates that make the old days of feudal servitude to the king seem like a vacation.

A monthly data package lasted less than an hour

To give just one example, I did what I thought I was supposed to do when I landed in Amsterdam: I bought a $50 “international data pack” from my carrier on my phone, a package that was supposed to include enough bandwidth to last me a month. I assumed this would be more than enough, because I was only going to be in Amsterdam for a week. In reality, I used the entire package in less than an hour — in fact, it wasn’t even enough to get me from the airport to my hotel, which is a half-hour trip. In that time, I checked email several times, looked at Google Maps to check my location (and find the hotel) and checked Twitter once.

In other words, I did things that any traveler might do. I didn’t download any HD movies or use my phone as a wireless hotspot or anything out of the ordinary. Based on that estimate, my week in Amsterdam could easily have cost me thousands of dollars, for something approaching my natural usage of cloud services. In fact, I actually wound up getting lost trying to find the hotel, in part because I was afraid to check Google Maps again. And so, telecom companies have succeeded in the kind of behavior modification usually done with animals: an electric shock is applied for any unwanted activity, to the point where you simply choose not do it.

In the end, I borrowed an unlocked phone from a friend (since my carrier doesn’t let me unlock my phone before the end of my contract without a penalty) and bought a local SIM card. That card gave me 15 times as much data as my own carrier did, for less than half the price. I should note that this is a provider I have been with for more than a decade, whom I pay monthly for a range of services including cable TV, broadband internet, five cellphones and a home VOIP service — and a complete stranger in an airport halfway around the world gave me 15 times the data for half the price my provider was prepared to.

And it’s not just me and my Canadian phone company. While at Structure, I spoke with a man who has been an advisor to some of the largest phone companies in the world, and he admitted that after his last trip abroad, he got a bill for more than 3,000 Euros — and he confessed that he had absolutely no idea what those charges were for. He had turned off all of his data-using apps, the ones which upload user information automatically to the cloud (Runkeeper, Apple’s Photostream, etc.) and tried to avoid doing anything like using maps. And yet, he was being asked to pay 20 times what a normal monthly cellphone plan would cost.

Market control results in economic rent

Why do we put up with this kind of thing? The simple answer is that we have no choice. In most cases, users get to choose between one or two — or possibly three — carriers, all of whom charge roughly the same for their services, especially for things like data roaming and text messaging. This is what is known as a cartel, or at the very least an oligopoly. And the reason why these companies charge thousands of times as much as it actually costs to transmit a megabyte of data is also simple: because they can.

Telecom carriers have lots of easy explanations for this kind of thing: foreign roaming agreements are expensive, they have to offset their investment in new technology, they need to subsidize handsets, and so on. But the reality is that they have virtually zero incentive to charge lower prices — they already control enough of the market to dictate terms. In order to provide cable and telephone service early on, many governments essentially gave carriers the future on a silver platter, and now there is no way around them. Like a feudal lord, the carriers served the king faithfully and now get to reap the benefits in perpetuity.

This is known as “economic rent” — meaning he who controls the market gets to set the rent. And in an age when web-based services have become such a huge part of our lives, there is an inevitable clash between our desire to use things like maps, email, text messaging and social networks and the carriers’ desire to continue making the kind of profit margins they have grown used to. And consumers are trapped in the middle.

Post and thumbnail images courtesy of Flickr user Alexander Vaughan

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