AT&T Charges Its Customers Up to >2,000x what China’s State-Run Telecom Monopoly Charges
By Shawn Danino
In 2018, it’s difficult for many of us to get by without a smartphone and access to data. During the 2018 Ford School China Trip, we were given the option to purchase a Chinese SIM, which was provided by China Unicom, a state-run telecommunications operator. When we hear state-run monopoly in the United States, we immediately think of rent-seeking, price-gouging and inefficiency, but in comparing my options with AT&T (my provider in the US) versus China Unicom, I found that to be far from the truth.
If we purchased the Chinese sim, we can acquire data at a rate of 270 Renminbi for 20 Gigabytes. That comes out to about $1.0095 / Gigabyte. The rate that AT&T quotes for its out of plan international data coverage is $2.05 / MB (pictured below). After some confusing conversions from RMB to USD and from MB to GB, we find that comes out to $2,050 / GB.
So how is AT&T able to get away with charging its customers so much? First of all, it helps that they spent over $16.7 million in 2017 lobbying the United States Congress. And anybody who points to AT&T as an example of the free market at work may want to reflect why Americans are expected to pay (at most) over 2,000x more than Chinese customers.
What’s Better for Consumers?
I came into the trip thinking that I would see many examples of corruption and rent-seeking in China and as an American, I would be gouged everywhere I went. But in Beijing in particular, nearly every place I went to counted bills through a machine, gave exact change, and refused tips. This might be a surprise to many Americans.
This also made me reflect on China’s version of capitalism. While folks in the West are critical of the role of the Chinese Communist Party (CCP) in the market, there is no disputing that China’s citizens pay far less for equivalent amounts of data. Furthermore, these lower data rates (to name one example) increase consumer surplus. I was surprised to find myself jealous of what consumer options the Chinese had! This also helped to explain why China’s savings rate was over 46% as of December 2017, according to Statista, while the rate in the United States was 2.6% in October 2017, according to Bloomberg.
Before we all defend AT&T, let me acknowledge this is not an apples to apples comparison. Those are very difficult to make for several reasons. First of all, AT&T (unless the full cost of the phone is paid upfront) does not allow Chinese SIMs to work with their phones unless the phone is fully paid off, a fact I was not privvy to until spending over an hour at the China Unicom store in Beijing. Also, that whole blocking outside providers from offering consumers more options? How does that square with our vision of ‘free-market capitalism?’
So customers like me are locked in to using options available from AT&T. One of the only ways around this is to buy a new Chinese phone altogether with a Chinese SIM, which isn’t very practical for visitors and tourists. Furthermore, all of my data, software and passwords, are stored on my AT&T iPhone 7+, so working (I’m a freelance securities trader) would have been considerably more difficult.
Throttling: When Unlimited Isn’t Really Unlimited
AT&T does provide options outside the $2,050 / GB outside coverage. One option was through their ‘passport plan’ (pictured below), which offers options ranging from $40-60 / GB, which is only 40-60x more than the options for Chinese consumers. They also ‘bundle’ different benefits and prices into this plan, showing discounted talk (only $0.35/min!) and unlimited ‘text, picture and video messages’ (although they fail to mention that the number of picture and video messages you can send is reliant on the data available).
As a securities trader, I knew that I would be ‘working’ in China to some degree. I follow the markets, invest in technology companies I believe in and occasionally trade different options and derivatives. This meant that I needed more reliable access to data. So I bought the ‘best’ possible plan available from AT&T. It charged me $10 / day to extend my unlimited data plan from the United States to China.
However, even with my ‘cadillac’ plan, I noticed that data speeds slowed down dramatically after my first day of (relatively heavy) usage. I tried to unlock a bike using the Chinese Ofo application, and the request failed several times, likely because the speed had been slowed down to a point where the application could not fill a very simple request. There were also failed attempts to send simple text messages inside of WeChat.
Looking Forward: How Are Things Changing for American and Chinese Consumers?
One of our stakeholder meetings was with the Chinese Consumers Association (CCA, pictured below), a government agency tasked with protecting consumers with a similar mandate to the Consumer Financial Protection Bureau (CFPB) in the United States. We learned about cases the CCA pursued against high-profile foreign companies, including IKEA and Apple. Meanwhile, in the United States, President Trump recently appointed Mick Mulvaney to Chair the CFPB, in addition to his responsibilities as the Director of the Office of Management and Budget (OMB). Mulvaney has mentioned in the past that he wants ‘to kill’ the CFPB, so his leadership does not bode well for the future of consumer protection in the United States.
So at best, AT&T offered me a rate that was ~40x the price of the Chinese monopoly, and at worst, the rate was over 2000x more. And there was no way I can use my phone with a Chinese data plan. While a state-run telecom is far from Adam Smith’s Vision of laissez-faire capitalism, AT&T’s option structure also feels pretty far from our vision of the free market. These comparisons merit further attention as Americans compare themselves to the rest of the world.
AT&T lobbying spend: https://www.opensecrets.org/lobby/clientsum.php?id=d000000076&year=2017
China Savings Rate: https://www.ceicdata.com/en/indicator/china/gross-savings-rate
China Consumers Association: http://fortune.com/2016/11/17/china-consumers-association-battery-cca-apple/