The Cell Phone Industry
Transitioning from Effective to Efficient
Martha Lopez
Northwest Christian University
Cell Phones Industry
Transitioning from Effective to Efficient Cell phones had their humble beginnings inside cars in 1956 followed by Dr. Martin Cooper’s invention of the portable hand-held phone independent of the car in 1971 (Cell Phone Timeline, n.d.). The cell phone timeline shared by softschools.com shows that in 1983, Motorola introduces the first cell phone available to the public with text messages introduced in 1993 and the first smart phone in 2002. The next major innovation experienced by the cellular industry involved the introduction of the first iPhone with a touch screen that could do all the functions of a computer in 2007. It is interesting to note that it is now 41 years since its beginning. When cell phones first came out, they cost around $3,995 with a battery life of twenty minutes and weighed 2.5 pounds; the main purpose was to make a phone call (Buck, 2013). Fast forward to today with cell phones subscriptions reaching 7 billion globally by mid-2014 with more than 335 million in the U.S. alone according to Plunkett Research, Ltd., a leading provider of industry sector analysis and research, industry trends and industry statistics (Introduction to Wireless Industry, n.d.)). Cells phones have gone from being effective in communicating via phone calls to increased efficient uses in managing finances, playing games, listening to music, taking pictures, watching videos/movies, tracking your health and staying in touch via social media. According to Plunkett Research, Ltd, “the cellphone industry is relatively immune to dips in the economy, as consumers consider their mobile communications to be as basic a need as transportation.”
Market Structure
The cell phone industry is one with a few firms producing most of the total market output. This is what Thomas & Maurice (2011), refer to as an oligopoly market. The sales and profits from every competing firm are interdependent. This means that every decisions involving pricing, output, advertising, production and even research and development affect other firms in the market (Thomas & Maurice, 2011). Although there are giants who control the industry, a person can enter the cellular market easily. Marty Jerome (2012) writes about an international student from Peshawar, Pakistan, Khattak who began offering unlocked phones in 2007. He made in excess of $50 million in sales in just over two years. Khattak claims, “the greater challenge is that there are practically no barriers to entry in the unlocked cell phone market, so the company must continually raise its game. The secret here seems to be to offer a unique service that others are not currently offering such as the unlocked phones industry.
It is important to note that two of the carriers have three-quarters of the subscribers (Gryta, 2013). Lohr (2011) points out in his article in the New York Times that the wireless market in most nations are highly concentrated as he goes on to state:
In telecommunications, the market concentration itself is not surprising. The telephone business, after all, has long been one of the classic examples of an industry that exhibits the forces that lead toward ‘natural monopolies,’ or at least oligopolies. Those forces include the high costs- investment needed to build out networks-and the efficiencies that come from providing services to millions of customers.”.
Market power
There are several large U.S. telecommunication companies such as AT& T Inc., and Verizon Wireless that have been scrutinized by the Department of Justice for abusing market power (Sharma, 2009). Sharma (2009) goes on to state that this is due to the Obama administration’s antitrust enforcement of monopolistic and anticompetitive practices by powerful companies. There is an effort to ensure that larger carriers are not hurting the smaller carriers by preventing