It is a generally accepted fact that today’s dollar doesn’t buy as much as it used to, but in the case of wireless airtime, it may actually buy more.
“Since the introduction of PCS, there is a whole new paradigm of wireless pricing. In most markets there are at least four providers, and that’s not including Nextel (Communications Inc.). Competition and enhanced technology are forcing prices downward,” said Charles Mahla, senior economist at Econ One Research Inc. in Sacramento, Calif.
Mahla said he has seen a consistent drop every month in the cost of cellular service. The increased number of providers has sparked a pricing war where subscribers not only are getting lower per-minute rates, but also are receiving features such as voice mail and caller ID for free.
The average price of wireless service in the top 25 markets in the United States dropped an average of 3.2 percent between November 1999 and December 1999, according to a survey conducted by Econ One that analyzed 1,799 calling plans, including personal communications services plans.
The survey looked at 30-, 150-, 300- and 600-minutes-per-month plans. In the 150- and 300- minute categories, Los Angeles’ rates ranked the highest, with each plan costing $41.58 and $50.81, respectively.
The average price of wireless service in Los Angeles also ranked the highest at $47.51 per month. Seattle had the lowest average rates at $35.55 per month, according to the survey.
New York City emerged with the lowest-priced 150-minute plan at $30 per month, but it had the highest-priced 600-minute monthly plan at $74.26.
The juggling of ownership of Ameritech Corp.-which recently completed its merger with SBC Communications Inc.-instigated significant changes in wireless prices in the St. Louis market. The average price of wireless service in St. Louis increased more than 5 percent to $45.39, compared with $43.20 reported just three months earlier.
“St. Louis is typically middle of the pack,” said Mahla. Efforts toward price cutting got lost somewhere in the merger shuffle, Mahla believes.
In San Francisco, where wireless prices usually are among the highest in the nation, a special pre-holiday promotion offered by GTE Corp. caused the average price to drop 17 percent in December from $47.44 to $39.20, the biggest decrease among the 25 cities surveyed.
Why the difference?
“Prices are driven by supply and demand factors,” Mahla said. “What’s the cost of developing a cell site?”
In cities like Los Angeles and San Francisco, land value is high and the geography is tricky. The hilly and highly populated terrain makes finding a location to put a cellular tower difficult and expensive.
For this reason, “any land-use question put forth in Los Angeles will take up a lot of time,” said Mahla.
Cellular providers spend months and sometimes years wading through local government red tape, spending large amounts of money to erect more towers-a cost eventually passed on to the consumer.
“On the demand side,” Mahla said, “both Los Angeles and San Francisco demand mobile communications.”
The strained supply of cell sites, the high demand for wireless service and the financial burden providers must bear to build more towers all work together to drive up wireless prices in these markets.
Getting what you pay for
Expensive or not, the advent and widespread popularity of prepaid cellular has forced providers to change the way they offer service.
Long-term service contracts are preferred by carriers because they guarantee payment from a customer over a set period of time, but in general, customers-especially those with limited income-dislike the immobility and commitment a long-term contract represents.
Throughout the industry, providers are moving toward short-term or no contracts that offer handsets for sale, and away from long-term contracts and free handsets.
“Giving away handsets is not as prevalent as it once was. You can still get a free phone, although many of the carriers require you to buy a phone, but at a deep discount. If you can’t lock someone into a contract, there’s no guarantee you can recoup the loss on a free phone,” Mahla said.
Although handsets increasingly are being left out of the all-inclusive wireless package, consumers are getting other features at no extra charge.
“Competition is driving the inclusion of more and more features, and carriers are responding by raising the bar on what `standard’ service is,” Mahla said.
“While there are a lot of subscribers who have no need for call forwarding or three-way calling, such features are becoming important marketing features to those subscribers who do.”
Of the 1,799 wireless plans surveyed by Econ One, the firm found 1,333, or 74.1 percent, offered voice mail for free; 1,482, or 82.4 percent, offered caller ID for free; and 1,560, or 86.7 percent, offered call waiting at no extra charge.
