Family plans may be family-friendly, but for wireless operators they are quickly becoming a trickier balancing act than where to seat squabbling relatives at a family reunion.
Family plans have allowed carriers to add new users at lower costs than traditional single-line customers, as well as cut down on customer churn since a group of people tied together are likely to stay with the same carrier longer. However, family-plan customers generate roughly half the monthly recurring revenue of their single-line compatriots, which has impacted carriers’ average revenue per user results.
Nearly all of the nationwide operators offer extra incentives for family-plan customers; the most popular feature is unlimited calling between plan members. Verizon Wireless, Sprint Corp. and T-Mobile USA Inc. all allow customers to add family members to a rate plan for $10 per month, while Cingular Wireless L.L.C. recently increased its monthly charge to $15. Nextel Communications Inc. is the least aggressive in offering incentives targeting family-plan customers by offering only a limited number of Direct Connect walkie-talkie minutes on shared plans and charging $20 per month for each additional customer on a family plan.
A consumer survey conducted by the Yankee Group found that 40 percent of adult wireless subscribers said they were on a family or group-rate plan, while 53 percent of teens between the ages of 13 and 17 said they were on a shared plan. Industry analysts also have noted that nearly half of gross subscriber additions are now coming through shared plans.
The survey found Verizon Wireless (34 percent) and Cingular (30 percent) controlled a majority of family-plan subscribers-boosted by the fact that the two operators also serve more than half of all wireless subscribers. Sprint accounted for a 12-percent share of family-plan subscribers, while T-Mobile USA served 10 percent of shared-plan customers.
Cingular has stated that family-plan customers generate between $25 and $30 in ARPU per month, which is well below the $50 in ARPU the carrier posted during the second quarter and was partially to blame for a 5-percent year-over-year ARPU decline.
While Cingular took a hit on ARPU, the carrier’s customer churn improved from 2.7 percent during the second quarter of 2004 to 2.2 percent this year. Nearly all of the nationwide operators have seen a similar improvement with second-quarter churn, dropping from an average of 2 percent in 2004 to 1.75 percent this year.
Industry research firm Compete Inc. released a report earlier this year that showed family plans have a strong upside. Specifically, Compete said that a potential decrease in churn or a drop in the cost per gross addition and cash cost per user associated with such offerings more than offsets the revenue hit from having customers share a rate plan.
“In isolation, the family plan add-on is only marginally attractive, but when viewed in the context of the entire family, can create significant value,” Compete noted. “We estimate a 20-percent reduction in churn will increase the [net present value] of the family unit by about 30 percent.”
The Yankee Group also said carriers could see further upside by using their family-plan offerings to tap into the pre-teen market. While some child advocacy groups have begun to question the wireless industry’s attempts to market services to pre-teens and even younger children, the Yankee Group claims that with only 25 percent of 8- to 12-year olds owning their own cell phones, the market “represents potential growth opportunities.”
Highlighting the importance of family plans, Verizon Wireless, which posted a 2.7-percent year-over-year drop in ARPU during the second quarter, recently tweaked its family-plan offerings for the second time this year. The carrier increased the price of its three lowest-priced family plans by $10 per month, but added between 200 and 600 additional anytime calling minutes to the plans.
Current Analysis senior wireless services analyst Weston Henderek noted the move should help Verizon Wireless increase ARPU from its family-plan customers, as well as provide a more competitive offering against Cingular.
“By increasing the number of anytime minutes, [Verizon Wireless] has gained some separation from its offering and Cingular, while at the same time increasing the price of its low- to mid-range family plans by $10 per month,” Henderek wrote in a research report.
And just as family feuds tend to be some of the most heated, Henderek said he expects family-plan competition among carriers to only intensify.
“Expect further pressure on the number of anytime minutes and services that come with family plans in the coming quarter between these leading carriers, since the family-plan arena is currently one of the fastest-growing areas in postpaid wireless,” Henderek added.
