Pricing has stabilized in the majority of U.S. markets, say analysts.
While the name of the game last summer was to get the phone in the hand of the user with price offerings like $50 for 1,000 minutes per month, carriers this year are likely to push other features and offer short-term promotions.
“Across the markets, there is clearly a stabilization into permanent core pricing with heavy promotions around that,” said Russ Wiseman, vice president of marketing and strategy with PrimeCo Personal Communications L.P. “Rather than offering a low rate plan, there may be special incentive in the short term … It’s not unlike the discount CD rates we see in banks that get the customer in the door.”
Sprint Spectrum L.P., once offering some of the most aggressive pricing plans across the country and causing other carriers to match them, in the first quarter adjusted its entire service offering for the second quarter in a row. Gone are the majority of its dime-a-minute plans as well as the 180-minute, 400-minute and 800-minute plans that retailed for $30, $50 and $80 respectively, noted a recent pricing survey from Robinson-Humphrey Co. L.L.C. in Atlanta. AT&T Wireless Services Inc., too, has discontinued many of its “double-your-minutes” promotions.
“Our focus is on packaging the overall value that will strike a cord with the customer,” said Robert Kelley, director of marketing for Sprint PCS in Phoenix.
Special short-term incentives carriers are offering include a break from access charges, discounts on handsets or free minutes on the weekends. In Denver, where three PCS providers and two cellular operators along with Nextel Communications Inc. compete for customers, Sprint PCS is advertising its Add-a-Phone option, which allows two people to share the minutes from a single service plan. Customers are required to sign up for its $70 a month plan for 650 minutes and pay an extra $15 to add a second user. A Western Wireless Corp. retailer is offering a service plan for $20 per month for 60 minutes that includes free weekends, special handset pricing and a free in-car charger and carry case. And an AT&T Wireless Services dealer is advertising Digital PCS dual-mode handsets for $30, along with 50 percent off incoming calls for an extra $3 per month and 100 free off-peak minutes for another $3.
Bundled-minute pricing plans continue to be a popular pricing scheme for carriers. The Robinson-Humphrey survey indicates that many carriers are counting on subscribers not using all of their bundled minutes each month, which allows carriers to avoid incurring certain incremental costs like interconnection fees.
“A dime-a-minute rate is only 10 cents if the customer uses 10 cents,” said Chris Larson, senior wireless analyst with Prudential Securities Inc. in New York. “Carriers can get an above-average ARPU by doing this.”
Whether U.S. carriers will go through another round of deeply discounted bundles once more new carriers enter markets remains to be seen.
“I’m looking for ARPUs to go down 5 (percent) to 10 percent this year,” said John Bensche, analyst with Lehman Brothers Inc. in New York. “I’m not looking for any price war. There’s rationality in the market. We’ll still see some random promos running for a couple of months.”
Prices will continue falling, say analysts, as new entrants will have to compete using price since they will launch service with inferior footprints and distribution channels. The markets with three PCS carriers generally reflect lower pricing margins than markets with only two PCS operators. And the fight for premium customers will push on.
“We have seen in select U.S. markets that new entrants are going after new premium customers with buckets that are less than incumbents are offering,” said Richard Siber, director of Andersen Consulting’s worldwide wireless consulting practice in Boston. “Around the country, some of the larger PCS players like PrimeCo and Sprint have aggressively shaken the tree in targeting premium customers.”
