Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / The Hidden Cost of Your Phone Bill
Transcript
- Lucas: Look at your last three utility bills. Not the electric one, but the phone line. The internet connection. The streaming bundle that somehow includes a music subscription you never use. That total number has barely moved in two years, even while the grocery store receipt keeps climbing. It feels like a relief, right? Until you realize that the reason it feels stable is because the companies providing these services have successfully locked in their margins. Luna: Right, and that is exactly the disconnect people feel when they hear headline inflation cooling but still feel broke. The goods market deflates, but the services market just sits there, stubbornly expensive. Lucas: Exactly. And today we are drilling into the telecommunications and digital services sector. Specifically, why your monthly bill for connectivity is becoming a permanent fixture of high-cost living, regardless of what the Federal Reserve does with interest rates. We are looking at structural pricing power, not temporary supply chain hiccups. Luna: So you are arguing that telecom companies have more pricing power than, say, a grocery chain or an airline? Lucas: I am arguing they have a different kind of leverage. Groceries compete on thin margins with massive volume. Telecom providers operate in local oligopolies. In most US cities, you effectively have two choices for high-speed fiber or cable, and maybe a third if you count satellite. That lack of competition allows them to raise prices annually by four or five percent, easily outpacing general inflation, without losing customers. Luna: But isn't competition supposed to work here? Why don't consumers just switch providers if the price goes up? Lucas: Because switching costs are artificially inflated by the industry itself. Porting a number takes time. Early termination fees still exist in many contracts. And worse, the installation hassle creates friction. So the provider raises the price by three percent every year, knowing that most people will just absorb it rather than jump through hoops. It is a quiet tax on convenience. Luna: That makes sense. It is less about the product getting better and more about the customer being too tired to leave. Lucas: Precisely. And look at the data from July. Core CPI, which excludes volatile food and energy, was at 336.8. That is still elevated. But notice where the stickiness is coming from. It is services. Housing, insurance, and yes, telecommunications. These are not commodities you can import cheaper from overseas. They are domestic, regulated, and locally monopolized. Luna: So the Fed raising rates doesn't really hurt their bottom line because their main cost isn't borrowing money, it's infrastructure maintenance and labor. Lucas: You hit on a key point. Infrastructure costs are fixed. Once the fiber is in the ground, the marginal cost of adding one more subscriber is near zero. But the fixed costs—digging trenches, maintaining switches, paying engineers—keep rising due to wage inflation. So they pass those wage increases directly to you, the consumer, via monthly bill hikes. Luna: It sounds like they are using wage pressure as an excuse to boost profits, not just cover costs. Lucas: Often, yes. But let us be fair. Labor is real. The average wage in the tech and utility sector has risen significantly. However, the profit margins in major telecom firms have also expanded. They are not just passing on costs; they are capturing value because there is no viable alternative for most households. If you want to work, you need internet. If you want to stay connected, you need a phone plan. Luna: It removes the elasticity from demand. People aren't buying this stuff because they want it; they buy it because they have to survive in the modern economy. Lucas: That is the definition of inelastic demand. And in economics, that is the golden ticket for pricing power. When demand is inelastic, you can raise prices, and revenue goes up. When demand is elastic, like with luxury watches, you raise prices, and revenue goes down. Telecommunications sits firmly in the inelastic camp. Luna: But what about the new entrants? Like T-Mobile disrupting the big three carriers? Didn't that lower prices for everyone? Lucas: It did, initially. For about five years, we saw intense price wars. Postpaid plans got cheaper. But that phase ended around 2023. Now, the big players have realized that fighting over price destroys margins. So they coordinated, implicitly or explicitly, to stop cutting prices. Instead, they introduced annual fee hikes. You might get a discount for keeping your old phone, but the base rate climbs. Luna: So the competition cooled off, and the oligopoly stabilized. That explains the recent trend. Lucas: Correct. And look at the broader macro environment. The Fed Funds effective rate is holding steady at 3.63 percent as of early September. The market expects rates to stay here for a while. For a company with high debt loads, that is manageable. But for a consumer already squeezed by housing costs, any increase in mandatory spending hurts. Luna: Housing is the biggest chunk of the budget anyway. Does telecom matter that much in the grand scheme? Lucas: On its own, maybe ten dollars a month seems trivial. But compounded over a decade, and across hundreds of millions of households, it represents billions in wealth transfer from consumers to corporate balance sheets. Plus, it adds up with internet, TV, mobile, and landline backups. A typical family might spend two hundred dollars a month on connectivity alone. Luna: Two hundred dollars. That is more than some people pay for car insurance now. And it only goes up. Lucas: And it is invisible in the way that gas prices are visible. Gas prices change daily. You see the sign. But your phone bill changes once a year, often quietly, buried in the terms and conditions. Most people don't notice until they try to cancel and get hit with a retention offer that reveals how much they were overpaying. Luna: Which brings us back to the consumer strategy. Is there anything you can actually do about it, or are we stuck paying the toll? Lucas: There are tactics. First, you must threaten to leave. Call the retention department every twelve months. They have the power to waive fees or drop your rate to match competitors. Second, consider bundling less. Standalone mobile plans are getting cheaper. Use VoIP for home internet if you live in a rural area with good broadband options. It requires effort, but it breaks the inertia. Luna: So the burden is on the consumer to be annoying. The system is designed so that staying silent is the default, and silence equals higher prices. Lucas: That is a harsh but accurate summary. The industry relies on your fatigue. They know you are busy, you are stressed about other things, and changing providers feels like a chore. So they extract rent from that inconvenience. Luna: It reminds me of gym memberships. You pay upfront, you rarely go, and they count on you forgetting. Telecom is the same, but essential. Lucas: A vital utility that functions like a luxury good in terms of pricing strategy. And as we move deeper into 2026, with inflation potentially ticking up again due to geopolitical shocks or weather events, these service costs will only become harder to ignore. Luna: Especially if the UN's warnings about extreme weather impact infrastructure repair costs. Those bills will eventually come due for the providers, and guess who pays them? Lucas: Us. Always us. The cycle continues. Prices rise, margins hold, and the conversation shifts to how we cope. Which brings us to something important about this show. Luna: We believe in giving listeners the tools to understand these systems, not just complain about them. Lucas: We deliberately do not run ads on these episodes. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. It helps us keep digging into these details without selling out to the very industries we analyze. Luna: Your support keeps the journalism independent and ad-free. Thank you for helping us maintain that standard. Lucas: Back to the data. The ten-year breakeven inflation rate is at 2.34 percent. Markets expect inflation to stay slightly above the Fed's target. This means long-term costs, including your future telecom bills, are priced to rise modestly but steadily. Luna: So the expectation is that the status quo holds. No dramatic drops in prices, just a slow creep upward. Lucas: Yes. And unless regulators step in with stricter anti-trust enforcement, or technology disrupts the delivery model entirely, that creep is the baseline assumption for your household budget. Luna: It makes you wonder if 'essential' services should be treated differently in policy discussions. Should connectivity be regulated like water or electricity? Lucas: That is the debate happening in Congress right now. Some lawmakers argue that internet access is a public utility. Others argue that regulation stifles innovation. It is a tug of war between market freedom and consumer protection. Luna: And until there is a resolution, we are left with the current reality: pay the bill, fight for discounts, and hope the next competitor enters the market soon. Lucas: For now, that is the playbook. Keep an eye on those annual renewal dates. Be ready to walk away. And remember, in an inelastic market, your willingness to leave is the only leverage you have. Luna: A practical lesson for the wallet, and a reminder that economic theory plays out in our monthly statements every single day. Lucas: Exactly. Next time you open that bill, look past the total. Look at the line items. See where the value is, and where the rent is. Then decide if you are happy with the exchange.