According to the data from Merrill Lynch, Americans pay the least money for every minute of cell phone usage out of any of the 26 OECD nations.  But you wouldn’t know that from most of the news coverage with popular columns like Saul Hansell’s “Is there a method in cell phone madness” and you’d likely conclude the opposite was true.

Update 5:56 PM – Saul Hansell pointed out to me that he did mention in his article that Americans do pay the lowest per-minute rates in the developed world and he pointed out that text messages average 1 cent per minute.  I may have characterized his work to be biased and I apologize to him for that.  I should also disclose that I am a regular reader of his work which is typically fairly thorough and well researched.  I may disagree with some of his assertions and some of his conclusions from time to time such as this particular piece, but I do respect the man.

Figure 1 – Americans pay the least per minute of cell phone use

From CTIA FCC filing.

While there is some worthwhile information in Hansell’s article, the characterizations and conclusions seem a bit odd.  Hansell managed to find an economist from the Yale School of Management Barry Nalebuff who thought “the whole pricing thing is weird”.  Assuming he was quoted accurately, it sure doesn’t seem Nalebuff thought about it a whole lot considering the fact that he is an economist.  Nalebuff thought it was weird that there is a 35 cent per minute overage penalty for someone who went over their 1000 minute plan, but this completely ignores the fact consumers have the ability to pay a little more to get an unlimited plan and that overage fees tend to be the highest.

Moreover, Americans are among two nations in the world that has a meaningful choice between 4 or more wireless providers and there are many inexpensive plans to choose from.  The fact that most consumers are choosing the more expensive plans does not mean they’re being forced to pay higher prices due to a lack of competition or some sort of collusion.  It simply means that most consumers feel that they are getting sufficient value for the prices they’re paying despite how some economists and pundits feel.

They could be paying much lower rates with much lower commitment levels if they were willing to buy their own unsubsidized phone and go with pre-paid plans, but American consumers have voted with their wallets that they want that $400 phone with $300 of subsidies in exchange for a long term contract with predictable prices.  They want all the cool new features along with the status symbol and they would rather pay for it later than up front.  It’s no different than paying for things with a credit card.  While this may not be the most economically prudent thing to do, this is one of the choices that people in a free society make right or wrong.

Hansell even mentioned Sprint’s cheap and straight forward “Fair and Flexible plan” that charged $35 for 300 baseline minutes and then an additional $2.50 for each block of 50 minutes.  The plan was introduced in 2004 but it was soon retired when consumers didn’t like the uncertainty aspect of it.  Hansell praised this plan as something “even an economist could love”, yet the plan was rejected by consumers.  So if we are to believe that the “Fair and Flexible plan” is good, does this imply that American consumers are “weird” for rejecting such a plan?  Or does it simply mean consumers know best and businesses merely give consumers what they want?

Hansell goes on to beat the “text messages are too expensive” drum which goes something like: Text messages cost 20 cents when they should be next to nothing because the marginal costs are next to nothing.  I’ve debunked this before because average text messages prices are more like one cent per message and it’s misleading to be talking about marginal costs instead of the entire cost of building and maintaining a network.

The bottom line is that there is nothing “weird” about delivering products and services at prices that the consumers want, especially when Americans have so many more choices than the rest of the world and they get the lowest  per call rates.  What would be weird and foolish is if the people who actually ran successful businesses started listening to the academics and pundits.