Here's why phone companies like Verizon and AT&T charge more for extra data

• Mobile data in the US is expensive. Companies like Verizon and AT&T charge customers overage fees for exceeding their data plan.
• Even with an unlimited plan, your speed may be throttled.
• Your bill helps pay for repairs, network upgrades, and administration costs. But competition is what really affects data prices.
• Visit Business Insider's homepage for more stories.

Following is a transcript of the video.

Narrator: Take a look at this AT&T bill for two phone lines. The total comes to over $142. There are charges for 4G LTE access, international calling, and a bunch of fees and taxes. It's confusing and expensive. But it's not just this bill. Compared to similar markets, the US has the fifth-most-expensive mobile data. These prices aren't set at random. There are a lot of factors that affect what 1 gigabyte costs. And these high costs are hurting everyone.

Let's go back to that graph. The US has four major carriers: Verizon, AT&T, T-Mobile, and Sprint. But even though the US has multiple carriers, their prices aren't competitive like other countries with four carriers. Research firm Rewheel found that median mobile gigabyte prices in the US were 16 times higher than European markets with four carriers. Because of these high prices, consumers have to choose the lesser of multiple evils when picking a data plan. You either pay for a set amount of data but get charged when you use extra, or you pay more up front for unlimited data.

But unlimited data doesn't mean unlimited speeds. After a certain point, you're going to get throttled. With AT&T's unlimited plan, for example, speeds may be slowed after you use 22 GB of data. And you may find yourself throttled anyway, no matter what plan you choose. A study from Northeastern found that video streaming was throttled even when the network wasn't under a heavy load. Even one of Verizon's unlimited plans explicitly offers "DVD-quality" 480p streaming. That's standard def, by the way.

Man: Of course it sounds strange at first. The advertisement says it will.

Narrator: Now, there are several mobile virtual network operator companies.

Mint Fox: Hey there! It's me, Mint Fox!

Narrator: MVNOs piggyback off the cell towers of one or more major carriers. Companies like Mint and Google Fi offer cheaper plans, but these aren't nearly as popular as traditional cellphone plans. And their speeds may be limited, with priority given to the main network customers. OK, so mobile data is expensive. But 4G data isn't a physical thing. If you use an extra gigabyte of data, Verizon doesn't have to make another gig to replace what you used. So why does someone who used 10 GB have to pay more than someone who used 2? To understand what you're paying for, we have to look at how data gets to your phone.

When you use 4G data, your phone is sending packets of information to a cell tower. That tower then sends information back and forth over miles and miles of fiber-optic cables, sometimes even submarine cables. It costs a lot to run and maintain that infrastructure. You're paying for things like repairs, updates, administrative costs, and the electricity it takes to run everything.

But remember all those taxes and fees? You might be getting charged more depending on where you live. In the US, cellphone taxes vary widely by state, and even within a state. Just look at New York. In 2018, cellphone taxes were almost six times higher than Nevada. There's also a serious lack of investment in rural areas. Cities and places with a denser population get new technologies like 5G first, while rural areas have to deal with slower speeds. In 2018, average mobile download speeds in Massachusetts were more than double speeds in Wyoming. And more remote geographical regions often come with higher data costs. No matter where you live, the amount you pay per gigabyte doesn't really equal the cost to maintain the network. It's competition that controls data prices.

In 2017, both AT&T and Verizon brought back unlimited plans in response to plans offered by T-Mobile, and research has shown that prices in three-carrier markets are higher than four-carrier markets. But these problems are much worse in certain parts of the world. Only about 51% of the world is using the internet. High data costs are one of the biggest factors that prevent developing countries from getting online.

Research from the Alliance for Affordable Internet found that in low- and middle-income countries, 1 GB of mobile data costs 5.5% of the average monthly income. That's five times higher than what the organization considers affordable internet. To give you an idea of how high that is, 5.5% of a $50,000 US salary would be almost $230 per month for just 1 GB of data.

Announcer: The dwelling without a phone is cut off from the world, regardless of its closeness to other buildings.

Narrator: But there are solutions to this problem. Some countries are putting specific focus on lowering mobile data prices.

Dhanaraj Thakur: Malaysia are putting out an effort to ensure there is competition in the market to make it easier for people to come in, like new companies to come in and sell services.

Narrator: That's Dhanaraj Thakur. He's the research director at the Alliance for Affordable Internet and the Web Foundation. Dhanaraj pointed out that Malaysia has also invested in subsidizing access to lower-income groups.

Thakur: Some countries are really making an effort to try and push these powers that can improve affordability.

Narrator: Competition, government investment, and infrastructure sharing can all help lower data costs. But consumers in low-income areas don't always get this investment. In June, the FCC took an initial step towards limiting the spending of universal-service programs, a program that, according to the FCC, is designed "to make broadband as ubiquitous as voice." Capping the USF could limit broadband access in rural areas and classrooms.

And competition may be getting even harder to find in the US, as Sprint and T-Mobile are trying to merge. A lot of people are concerned that if the US consolidates to a three-carrier market, the lack of competition will increase costs for consumers. We don't know for sure what will happen if T-Mobile and Sprint merge. They claim the merger will allow them to lower prices and create new jobs. But when AT&T and Cingular merged in 2004, thousands of workers were laid off.

What we do know is that higher data costs and lax regulations on carriers hurt consumers, although even in a market that isn't competitive, you may still have some choice. Don't just accept your expensive bill. Take some time to shop around or tell your carrier you're thinking of switching to see if they can offer you something better. You might be able to find a cheaper plan.