AT&T’s Wireless Profits are Outrageous; AT&T’s 5G & Wireless Prepaid Prices Are Obscene Compared to Overseas — Why?
How can Vodafone UK offer a real “unlimited” 5G wireless service with over 1000GB for $34 dollars US, while AT&T’s best unlimited 5G plan is about $100 bucks (with surcharges) with only 100GB (but it is also called ‘unlimited’). Worse, how can AT&T’s prepaid plan, advertised at $35 ($41.30 with surcharges), only come with 1GB?
$.03 cents per GB and 1000 GB vs $41.30 per GB and 1GB is one of those –What the…? moments.
(NOTE: These prices do not include the cost of a phone rental or other devices and the associated taxes, fees, etc. that are part of AT&T’s charges.)
Unfortunately, this pricing disconnect has an even darker side: AT&T’s wireless service has a profit margin (EBITDA) of 50%, not counting the ancillary revenues and profits from selling the data about your online usage, location, purchasing patterns, etc.
In a time when the companies are screaming about the virtues of 5G, which appears to be more vaporware than a usable service, extremely inflated US wireless prices due to over-the-top profit margins brings up a whole bunch of issues. While this may make investors rejoice, this has been harming America’s broadband future and economic growth, not to mention creating and expanding the Digital Divide, especially in rural areas. Moreover, with an out of control, captured FCC hell-bent on an imaginary 5G future, the subplot is that the FCC has been removing the regulations and obligations on the wires to make the AT&T, Verizon and CenturyLink controlled state public utilities, the core primary infrastructure, be reclassified to become private property, not to mention still being charged to local phone customers, including rural or low income customers. This needs to be stopped and confronted now,
Let’s Connect the Dots:
- Part I discussed how Verizon and AT&T have been touting 5G wireless and yet Verizon’s coverage maps show that there are no full city deployments and the submitted maps are filled with caveats and useless. AT&T is showing full coverage of many areas, but the company has decided to redefine 5G as 4G LTE with a lot of lipstick.
- This is Part II. It focuses on the excessive wireless profits of AT&T, the outrageous costs of wireless service in the US as compared to Vodafone in the UK as well as other countries overseas. Moreover, wireless as presented can never replace a fiber optic wire to the home, or even be a substitute for current wired broadband services when wireless is based on limiting the usage or making their customers pay more.
- Part III: FOLLOW THE MONEY: IRREGULATORS v FCC: On January 17th, 2020, oral arguments for this FCC challenge will be heard in the DC Court of Appeals. We uncovered how the FCC’s accounting rules, (with the help of AT&T et al.), have been manipulated, allowing the wireless subsidiaries to divert billions of the state utility wireline construction budgets for their use instead of upgrading rural areas, or keeping prices hyper-inflated, among other harms. Moreover, the wireless profits are artificial and are being cross-subsidized by the wireline networks.
Let’s Start with AT&T’s Wireless Profits.
AT&T Wireless Profits:
Motley Fool detailed AT&T’s profit margins, EBITDA, (“Earnings Before Income Taxes, Depreciation & Amortization”) on wireless for 2019.
“It’s safe to say that 2019 has been a good year to own AT&T’s (NYSE:T) stock, and there’s no reason to believe the party is over… Though press coverage often centers on its long-awaited acquisition of Time Warner or whether its DirecTV subsidiary will get back on track, AT&T Mobility is still the belle of the ball — it represents about 40% of the company’s revenue and more than 50% of EBITDA. And long-term investors can take heart that AT&T is making plans to fortify its most important division — its new wireless plans should turn some heads toward Ma Bell. In addition, the company’s plans to retire debt, and buy back stock, should help continue its impressive run.”
Sharing the wealth
“The company is on target to post $28 billion in free cash flow this year and expects to grow this number to as much as $32 billion by 2022.”
A closer look at AT&T’s 3rd quarter 2019 financial report shows that the EBITDA for wireless is averaging 50%.
To put this into perspective, the S&P 500, a standard measurement on the health of a company or an industry, shows that the EBIDTA in the US has hovered around 16–20%, but in the 4th quarter it was down to 10.67%, averaging 17.7% for 2019.
While there are a host of caveats, it is clear that wireless has a profit margin 180%+ above the S&P 500, averaged for the year.
There are other revenues tied to the company’s wireless services. According to John Stankey, AT&T President, COO & CEO of WarnerMedia, at a December 10th, 2019 investor event, AT&T’s plan is to cap, read limit the use of the wireless service, so that the customers will require more capacity when they ‘bundle’ the AT&T entertainment/ AT&T-controlled content, which will then increase the “ARPU”, the “average revenue per user”.
“It opens up opportunity for us to move customers that haven’t moved into unlimited into unlimited, which drives the ARPU increase. It opens up an opportunity for us to explain to them why getting entertainment with their wireless service makes sense for them, and with entertainment driving them into those higher unlimited plans that drive ARPU accretion and value back to the customer by getting an entertainment bundle associated with that connectivity service, which ultimately helps our churn over time. And when you’re in those higher unlimited plans and you’re getting entertainment and you’re getting the benefits of that great performing network to watch and stream those services, that’s a good thing for us from a customer satisfaction perspective and a long-term loyalty perspective.”
Let’s not stop there. Once they are using the AT&T networks and the AT&T content, AT&T will then also collect all of the viewing and purchasing data, location information and even analyze it for their advertisers — via Xandr, the advertising and analytics division of AT&T.
“We’re providing an opportunity to not only get access to the content, but to take the data and the information that we go in and bring that back to them through Xandr so that they can use that information inside the customers that we know to help their advertising businesses. And that’s not only for their data, but it’s for the aggregated data of all the customers we sell through, which is an improvement for somebody who runs a regional business who doesn’t have broader insights.”
Note that the AT&T 3rd quarter report showed that this division had a 73.4% EBITDA average for the last 2 years, meaning this subsidiary is mostly profits.
Thus, AT&T’s obscene profits on wireless are not tied to helping solve the Digital Divide. Nor does AT&T ever disclose in investor calls that they control the wireline state utility infrastructure in 21 states. No, AT&T’s goal is to keep wireless profits inflated and build ancillary ways to keep speeds and bandwidth limited — and to charge more and sell data about you, dear reader.
How Can Vodafone Offer 1000GB for $34 Bucks?
Let us return to the opening chart and compare the price of Vodafone’s 4G and 5G unlimited wireless services, as of January 3rd, 2020 with AT&T’s Unlimited and prepaid plans.
Vodafone is the former partner of Verizon in Cellco Partners, AKA Verizon Wireless, and in the UK it now has a plan for about $30+ dollars which has unlimited usage; we use 1000GB but it could be more. And in the UK, there are none of the pesky made-up surcharges and fees that the US communications user has become accustomed to.
In the UK, unlimited means unlimited and the speed doesn’t slow down, ever, as you can’t use up the GB — it is unlimited. This is the Vodafone FAQ:
AT&T Wireless Plans
Now we go AT&T Wireless plans.
- The ‘prepaid’ $35.00 plan comes to about $41.30 with those added fees, and it delivers only 1GB, I repeat, 1GB.
- The most expensive new AT&T unlimited plan still caps out at 100GB — that’s 900GB less than Vodafone, and this plan, with taxes, is about $100 bucks. And it is almost 200% more for the base price.
Unfortunately, in the US, the word “Unlimited” has been hijacked to mean — AT&T et al. captured the regulators to redefine the word to mean “Limited” and that — ‘We’, the phone company, can slow down your service to an unusable crawl at our convenience. This is, of course, ludicrous.
The fine print of the AT&T plans shows the ludicrousness. In one plan, after 22GB, the networks may ‘temporarily’ slow down, while the hotspot, which comes with 10GB, will have the speed actually limited to 128Kbps once you run out of GB. In fact, after the high-speed data allowance is used on the AT&T plans, the speeds are “slowed to a maximum of 128Kbps for the rest of the term”.
How Ludicrous are the AT&T Plans as Compared to the EU28 and OECD?
Rewheel Research’s findings for October 2019 compared the speeds of the European Union and the OECD with the US, and this should send a chill down your spine. The majority of countries now have plans that are “unlimited”, and for just $34 US bucks you can get an unlimited plan.
NOTE: “EUR” is EURO was valued at $1.12 US on Jan 1, 2020, (though it can fluctuate daily) EU28 represents the European Union while OECD is an international economic development council; the US and Japan are some of the members of the OECD, but not the EU.
All of the lines on the right are countries with 1000+GB, and this chart is only for 30 EUROS, about $33.60
- “During October 2019 in 12 EU28 & OECD countries 30 EUR bought a smartphone plan with truly unlimited data volume.
- “59 operators sold 4G or 5G smartphone plans that packed truly unlimited mobile data volume in 27 out of 41 EU28 & OECD countries.”
“What is wrong with competition in US markets?
- “The median smartphone plan gigabyte price… in the US was 14 times higher.
- “The median gigabyte price of 5G mobile and wireless home broadband plans — most of which packed truly unlimited volume — was 0.05 EUR/GB
- “The US median gigabyte prices of mobile and wireless home broadband plans are 9x higher than the median gigabyte price in EU28 countries.”
While the research group uses different slices of the data as well as combines the different companies offering service in the different countries, the differences stand out, not as an anomaly but as a fact — America is being royally overcharged for wireless broadband.
5G to Replace the Wires? Hell No.
AT&T’s top 100GB plan is an embarrassment when the company claims that customers want to leave their wireline world for wireless, especially when the average monthly usage on wired broadband for Charter cable was 400GB.
This Multichannel News headline says it all.
“Charter: Broadband-Only Users Average 400GB of Monthly Data Usage…”
The article continues claiming that the average wireline broadband data usage was 269GB, with 4% of users now using 1 Terabyte — that’s 1000GB.
“MCN reported in January, research company OpenVault said that median wireline broadband data usage in the U.S. spiked 40% to 145.2 GB in 2018. Average usage was 268.7 GB.”
“OpenVault said that the number of users averaging more than 1 terabyte of data consumption monthly reached 4.1% last year. “
Games Now Require 70GB-100GB Downloads for Play Station 4. Kids, sorry you can’t play that game.
We keep hearing that wireless is supposed to be a substitute for a wired broadband connection. To show you how absurd this is, according to Game Radar, the new games for Play Station 4 in 2018 were 70GB to over 100GB in size.
Also listed were these games
§ “Call of Duty: Black Ops 3 -101GB
§ “Battlefield 4 Premium Edition — 71GB
§ “GTA 5–76GB”
Those Nasty Taxes, Fees & Surcharges
Every one of the first group of charges is a made-up fiction that is basically part of the cost of doing business and it should never have been allowed. According to AT&T, these are “not a tax or charge which the government requires AT&T to collect from its customers”.
- Regulatory Cost Recovery Charge is a charge assessed by AT&T associated with payment of government imposed fees and to recover the costs of compliance with government imposed regulatory requirements. It is up to $1.50 per line and may include costs incurred in prior years that are not yet fully recovered. It is not a tax or charge which the government requires AT&T to collect from its customers.
- Components of the Regulatory Cost Recovery Charge include, but are not limited to: Federal Regulatory Fee, Telecommunications Relay Service (TRS), Wireless Number Portability and Number Pooling, Enhanced 911 (E911), Wireless Tower Mandates Costs, Customer Proprietary Network Information (CPNI) Compliance Costs, Network Outage Reporting Costs, State Commission Annual Reporting Costs
- Administrative Fee is a charge assessed by AT&T that helps defray a portion of certain expenses AT&T incurs, including but not limited to: (a) charges AT&T or its agents pay to interconnect with other carriers to deliver calls from AT&T customers to their customers; and (b) charges associated with cell site rents and maintenance. It is not a tax or charge which the government requires AT&T to collect from its customers.
Separately, we must mention the FUSF, which has been hovering at 21–25% added tax — on your bill. This now being changed to be used for 5G and the companies, including AT&T ,are getting billions in government subsidies that we are all paying.
- Federal Universal Service Charge The Federal USF, created by the federal government, is designed to help ensure first-class, affordable telecommunications service for all consumers across the country, especially residents in high cost rural communities and low-income customers. Additionally, the Federal USF provides for discounted telecommunications services for schools, libraries and rural health-care facilities. All telecommunications providers are required to pay into the Federal USF, and their contributions may be recovered from customers.
And if you look at the list below you see that most of these taxes on your bill are pass-throughs; i.e.; taxes on the company that they then dump on your bills.
- Other AT&T Surcharges A percentage based and/or flat fee that AT&T assesses on the customer that allows it to recover its costs with regard to specific government taxes or fees imposed on the Company’s gross receipts, sales and/or property. Such fees include, but are not limited to the State Telecommunications Relay Services, gross receipts surcharges, 911 access line charges, DEAF surcharges, local wireless surcharges, state infrastructure and similar surcharges, and other fees imposed for government purposes. For business customers, such fees also include, but are not limited to a Property Tax Allotment surcharge of between $.20 and $.45 (currently $.31) applied with respect to Corporate Responsibility Users per assigned number (excluding Puerto Rico and where otherwise prohibited). These Surcharges are remitted by the Company to the government or used to recover costs already remitted by Company to the government, but are not mandated charges to the customer.”
In fact, the actual taxes on wireless bills that are mandated are a small portion of what you are charged.
We Will Continue:
PART III: IRREGULATORS v FCC: FOLLOW THE MONEY
- FOLLOW THE MONEY: IRREGULATORS v FCC is in court January 17th, 2020 and it exposes how the FCC accounting formulas have been manipulated with the help of AT&T et al. to intentionally make the entire wireline US infrastructure appear unprofitable.
- AT&T’s Wireless profits appear to be artificial and are being cross-subsidized by the wireline networks.
- The US wireless, broadband, phone, internet, and cable TV pricing have all been massively inflated because AT&T, Verizon, and Centurylink own the wired infrastructure, and they brought no serious competition to the cable companies, much less to each other, even though every merger that created AT&T and Verizon required full wired competition for broadband and phone services. The inflated rates, the lack of competition, and the control over the infrastructure and the manipulation of the accounting rules all worked together to create the Digital Divide and even the Net Neutrality issues.