Limited From Unlimited Better Than Limited?

Evan Amini

Mrs. Straub

Advanced Economics

20 February 2017

Limited From Unlimited Better Than Limited?

In my economics blog from last semester, I talked about how limited the new iPhone 7 Plus was back in September around its release date. Apple only had made a small amount of these phones and received a lot of backlash for not meeting the consumer demand. This trend of “limited” and “exclusivity” is actually quite common in the cell phone industry, but in a different sense: cell phone data. A few years ago, we were left with the sole option to choose a data package that limited the amount of data we were able to use, causing consumers to lean towards the cheaper plans, but ultimately paying hefty fees for going over their data limit. Sprint and T-Mobile were the first to reintroduce their unlimited data plan back in 2015, followed by AT&T at the end of 2016 (Holland). On the other hand, Verizon decided to disregard this rebirth of unlimited data and continued to provide limited data packages, until last week (Pan). Now, all four major carriers offer data plans at different rates and features, leaving consumers questioning whether to switch to an unlimited plan or not. In my opinion, I feel that the new competition with unlimited data plans amongst cell phone providers has resulted in these data plans becoming more economically valuable than having a limited data plan.  

Before analysing the benefits of choosing between a limited and unlimited cell phone plan, we must first understand how this industry has evolved and the economics behind providing data. Before the introduction of unlimited data plans from Verizon and AT&T, which are notably the largest cell phone carriers in The United States, consumers did not see the benefit of switching to other providers for an unlimited data plan, because they did not promise as high of a quality of service as their current plan (Holland). Sprint and T-Mobile, who were previously known for having a lower grade service than Verizon and AT&T, have seen a recent improvement that has created an even playing field for each of these four major carriers (Ruddock). After AT&T made the bold move to incorporate their unlimited plan a few months ago, it forced Verizon to start offering a similar service to their customers, due to the risk of their customers switching carriers. This market, being an oligopoly, causes the four providers to seemingly correlate their every move, explaining the reasoning Verizon and AT&T felt pressured to go unlimited (Pan). Consumers from all cell phone providers are now all able to decide between an unlimited data plan or a limited data plan, raising the question as to why everyone doesn’t seem to be rushing to switch to these unlimited plans. Although these plans are technically unlimited, the factors of producing data causes providers to need to still implement different “limits” on these plans.

The factors of production of data for consumers is in fact limited, which may seem like a surprise to consumers, until you look into the logistics. Cell phone providers are constantly putting up new cell towers due to the steady increase in consumer demand, because each cell phone tower has a limit to the amount of data capacity it can process and provide. The only problem is the limited capacity this solution has, as they can at first continue to add new towers in order to increase data production, but eventually increasing input will cause decreasing marginal output, a pure result of diminishing marginal returns. As a result, cell phone providers have to create strategic pricing and limitations on unlimited data plans to avoid network congestion (Woodford). A common way to “limit” those with unlimited data plans is through data throttling limits, where if a consumer reaches the specified data limit, their speeds are slowed down or data needs are “sent to the back of the line” (Goldman). This brings us back to the question up for debate: is it worth switching to unlimited data?

The limited cell phone data plans offered by the Verizon and AT&T start at around 1GB, and can reach up to 100GB. On the other hand, Sprint and T-Mobile currently only offer unlimited data plans (with the exception of prepaid options). Looking at the unlimited options, consumers are provided with services with data “limited” between 22 to 28GB (which will be used in our analysis), depending on the carrier (Pan) . Prices also vary between careers, as the carriers have interdependent pricing and have an incentive to strategize their prices based off what the others offer for unlimited data. Looking at the comparison chart on the left, the average price between the four major carriers for one line of data is roughly $80. At Verizon and AT&T, who both offer limited data plans, charge the same price with only 10GB a month, which is nearly half the amount you will get with an unlimited plan. The unlimited plan, besides the data speed taraf, has other hidden limitations that cause it to be priced much cheaper than the limited plans (Holland). The total utility of the consumer from an unlimited plan is much higher than a limited plan, as the amount of utility (in this case data) per dollar received by an unlimited plan is nearly double that of a limited plan. Because of this, I feel that most consumers currently on a limited data plan should look into becoming a part of the “unlimited movement”.

Works Cited

Goldman, David. “'Unlimited' Data Plans Aren't Really Unlimited.” CNNMoney, Cable News Network, 21 Oct. 2015, money.cnn.com/2015/10/21/technology/unlimited-data/.

Holland, Patrick. “Unlimited Plans: Verizon, T-Mobile, AT&T and Sprint.” CNET, CBS Interactive, 16 Feb. 2017, www.cnet.com/news/how-does-verizon-

unlimited-plan-stack-up-against-the-others/.

Pan, Daniel. “Best Unlimited Wireless Plan? New Verizon vs T-Mobile vs Sprint vs AT&T Offers Compared.” Phone Arena, Meetgadget, 17 Feb. 2017, www.phonearena.com

/news/Best-unlimited-wireless-plan-New-Verizon-vs-T-Mobile-vs-Sprint-vs-AT-T-offer

-compared_id90948. Accessed 20 Feb. 2017.

Ruddock, David. “Simply No Choice: T-Mobile's New ‘ONE’ Plan Is Not Good for Consumers.” Android Police, Illogical Robot LLC, 18 Aug. 2016, www.androidpolice.com/2016/08/

18/simply-no-choice-t-mobiles-new-one-plan-is-not-good-for-consumer-bad-precedents/.

Woodford, Chris. “How Do Cellphones Work?” Explain That Stuff, Explain That Stuff, 10 Apr. 2016, www.explainthatstuff.com/cellphones.html.

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