CELL PHONE ROULETTE AND CONSUMER INTERACTIVE QUALITY
Under current policies, cell phone consumers face a lower probability of finding the best carrier for their usage patterns than winning at roulette. Corroborating survey data consistently show significant dissatisfaction among cell phone users, network performance is a major issue, and customer churn is high. This problem may be traced to a new form of consumer interactive quality characteristic of emergent high technology products such as cell phone and broadband services. This problem is unlikely to be resolved by effective search and sampling, efficient secondary markets, or voluntary carrier disclosure. Traditional one dimensional disclosure responses to this new variation on an old asymmetric information problem should give way to a more multi faceted and fine grained policy approach.
As an integral part of their capital expansion and operations and maintenance programs, cell phone carriers routinely collect detailed information on network performance. As a rule, they are aware of any dead zones and congestion within their coverage areas and the percentage of dropped calls and busy signals. The Federal Communications Commission (FCC) does not, however, require carriers to publicly disclose such data, and carriers have not voluntarily done so. The FCC has also chosen not to report any statistics on blocked or dropped calls at either an industry or carrier specific level in its required biennial review. Rather, since passage of the 1996 Telecommunications Act, the FCC's network performance strategy has been to vigorously promote competition, believing that a competitive market will provide consumers with the level of call quality they desire and that adopting federal regulations is not necessary. In its 2000 biennial review, the FCC also explicitly removed the requirement that carriers display coverage maps, believing that competitive pressures were strong enough to ensure that carriers would continue to supply consumers with information on coverage. Carriers have not, however, provided detailed maps. The FCC's laissez faire approach has led to an arguably new and important variation on traditional asymmetric information problems. This new problem arises from a consumer interactive service quality unique to emergent high technology products such as cell phone and broadband services. This problem affects millions of users. In the United States alone, the industry has grown to over 140 million customers consuming over 50 billion minutes of airtime a month while wireless users now spend more time on cell phones than landlines. A wealth of survey and complaint data from sources as disparate as the Government Accounting Office, the American Association of Retired People, the National Association of State Utility Consumer Advocates, Consumer Reports, J.D. Power & Associates, and the California Public Utilities Commission confirms this problem is significant. Customer dissatisfaction is high, and network performance is a major issue. Churn rate is likewise high roughly one third of users change carriers annually and quality is the most important reason other than rates. Consumer interactive quality coupled with a lack of performance disclosure means that cell phone customers now face a significantly lower probability of finding the best carrier for their usage patterns than winning at roulette. In this insight, I explain why this is so and why the phenomenon of consumer interactive quality suggests a more multi faceted, fine grained, and individualized policy response than typical one dimensional disclosure solutions aimed at consumer aggregates.
Both economic theory and policy practice strongly suggest that asymmetric information "market failures" can often be ameliorated by disclosure standards. The argument: Without disclosure, consumers will make purchasing errors. This "old idea" underlies virtually all mandatory labelling from average electricity consumption on major appliances and crash test ratings for new auto to food ingredients and truth in lending. There is, however, something quite new and different about the consumer interactive asymmetric information problem that plagues the cell phone industry. There are numerous examples of well-intended but poorly designed mandatory disclosure requirements not serving the intended purpose. This cautionary note is important here because consumer interactive product quality problems likely require a more multi faceted and fine grained policy approach than traditional solutions aimed at consumer aggregates. Consider, for example, imposing traditional minimum performance standards, e.g. each carrier shall have no more than two percent dropped calls. Any given carrier might meet the overall standard in its coverage area but have high quality variances in the sub-areas that matter greatly to individual consumer choice. Similarly, mandating a longer free trial period might lower consumer switching costs but may not substantially lower total search costs, more details.
Indeed, absent fine grained coverage maps, consumers would still have to cycle through carriers in a Las Vegas roulette approach until they found their best carrier. In this context, consider the comprehensive and more granular approach in the "Cell Phone Users Bill of Rights" (S-1216) proposed by Senator Charles Schumer (D-NY). In correctly acknowledging an asymmetric information market failure and barriers to exit and re-entry, S-1216 notes, Consumers may not be aware of the deficiencies in wireless telephone service quality until after they have signed a contract, and exorbitant early termination penalties effectively lock consumers into undesired, long term contracts. As an appropriate remedy, Section 5 stipulates that Each wireless telephone service provider shall make available a map showing the wireless telephone service area of such provider.
Acknowledging the highly interactive nature of service quality, the bill likewise insists that Each such map shall contain the maximum practicable level of granularity emphasis added. Moreover, recognizing that service quality will vary over time as coverage and technology improve and user patterns shift, the bill requires that these maps be updated not less often than quarterly. The bill would also restore the role of the FCC in monitoring wireless service quality by requiring semi-annual reports by wireless telephone service providers on dropped calls, blocked calls, known coverage gaps or dead zones and predicted street level signal strength. Given its comprehensive and fine grained approach, the policy solutions offered in S-1216 would clearly go a long way toward resolving the asymmetric information problems currently plaguing the cell phone service industry. Note, however, that the consumer interactive problem described herein is not unique to cell phones but affects an emerging class of high technology products. For example, the best broadband provider for any given customer will depend on a broad array of consumer interactive factors that range from obvious issues of location and time of use to more subtle issues such as the quality of one's telephone lines, carrier imposition of so called band with caps that limit speed, and even the specific web sites one commonly visits, click here for more information. The broader point: Consumer interactive quality in emerging high-tech products turns an ordinary labelling problem with a traditional aggregate solution into something much more challenging and interesting.
Sources: 1. GSM Phone 2. GSM Cell Phone 3. GSM Mobile Phones