During the past several years, the four national U.S. carriers have whittled away the number of price plans they offer to consumers, dropped low-end plans and largely come into lock-step with each other on service plan price points. On the other hand, the cost per minute for most consumers has decreased substantially, and unlimited mobile-to-mobile and off-peak calling is readily available across the industry.
In an RCR Wireless News analysis of single-line price plans available to customers from the Web sites of Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc.-as well as plans from since-acquired AT&T Wireless Services Inc. and Nextel Communications Inc.-dating back to early 2003, several trends emerged.
For one, customers have fewer calling plans to choose from. From 2003 though 2005, the four largest carriers offered at least seven calling plans and more often, eight or even 10 at times. The monthly fees ranged from $20 for T-Mobile USA’s least-expensive plan (for 60 anytime minutes) up to $300 for a 6,000-minute plan from Verizon Wireless. Today Cingular and Verizon Wireless offer six national plans, and T-Mobile USA has seven, including two at the $40 price point. Sprint Nextel somewhat bucks the trend in offering two types of plans, Free Incoming or Fair & Flexible-but offers just four of the former and five of the latter.
Subscribers also have less variety in pricing plans-mainly because Verizon Wireless and Cingular offer the same number of minutes for the same price. Instead of the myriad differences-$5 here, 50 or 100 minutes there-that used to define the plans available across the industry, the four largest carriers have largely come to rest at price points with $20 increments between $40 and $100, with one or two more expensive plans available.
“We’re hitting a point in the market where … nobody really wants a price war anymore, and no good can come of continually driving prices lower,” said Weston Henderek, senior wireless analyst for Current Analysis.
Also, regional plans and low-end plans have been all but dropped. T-Mobile USA still offers some regional plans, but its $20 per month plan is a thing of the past. The entry-level plans among the four largest carriers are either at $30 (Sprint Nextel and T-Mobile USA) or $40 (Verizon Wireless and Cingular).
Part of the reason for dropping cheap postpaid plans, according to Henderek, is that carriers have been seeking to improve their average revenue per user by pushing customers to higher price plans. Cingular and Verizon Wireless for instance offer customers twice as many anytime calling minutes if they select their $60 per month plans in favor of the entry-level $40 per month offerings.
He added that prepaid plans have become much more competitive and essentially take the place of the low-end postpaid plans.
While carriers have added more value to high-end plans, the cost per minute for the remaining low-end plans has stayed the same or even increased. On the high end, a 6,000-minute per month plan from Verizon Wireless cost $300 in 2004 and now is down to $200-a cost-per-minute drop of 5 cents to 3 cents. Cingular’s 450-minute plan has the same cost-per-minute in 2006 that it had two years ago: 9 cents per minute. The per-minute rate for Sprint Nextel’s $40 plan has jumped from 8 cents in 2004 to 10 cents per minute today.
According to telecom analyst Jonathan Atkin of RBC Capital Markets, carriers have been pushing customers to more expensive plans using subtler methods. He cited the fact that unlimited in-network text messaging for Verizon Wireless customers used to come with a $5 package, and now Verizon Wireless has bumped that up to $10.
And, Atkin added, it’s working. Where customers might have signed up for service at a $35 or $40 plan a few years ago, now they are often walking out of stores with agreements to pay $60 or $70 per month, he said.
Another significant price change in recent years has been how the industry deals with customers who go over their minute allowances. Cingular introduced its signature Roll-Over plan that allowed customers to keep unused minutes to help shore up a customer’s balance later. Sprint Nextel has its Fair & Flexible plan, which provides a buffer for customers by charging $5 for each 50 minutes that they go over their limits up to a maximum limit that varies by plan, and then 10 cents per minute once that increment limit has been reached.
“The last thing the carriers-with the exception of T-Mobile-want to differentiate on is price,” Atkin said. “They’d much rather differentiate on a feature, like overage protection or a handset promotion.”
As carriers seek new ways to differentiate themselves without altering their base plans, one new strategy has come from Alltel Corp. The carrier recently introduced its MyCircle feature for customers who are on plans beginning at $60 per month: My Circle allows subscribers to choose up to 10 phone numbers-landline, wireless, residential or business-that they can make and receive unlimited calls to and from.
“That’s a very, very big deal in my mind,” Henderek said.
Alltel’s plan is the first of its kind of be offered by a large carrier, although options of the same sort are scattered throughout the industry. Sprint Nextel lets its business and residential customers choose one landline for unlimited calls for between $5 to $8 per month, and regional operator SunCom Wireless Holdings Inc. already allows its subscribers to choose up to 10 numbers for unlimited calling for $10 or $15 extra, depending on the plan. On the prepaid side, Virgin Mobile USA L.L.C.’s Inner Circle allows unlimited off-peak calling to three selected numbers for 70 cents per day, with up to two number changes per month free.
Atkin also predicted that the cost of prepaid service will become more competitive, as carriers seek to gain traction in a market that is becoming more important because of high market penetration. T-Mobile USA, he noted, offers a perk to customers who spend at least $100 on prepaid minutes; the minutes are valid for a year, much longer than is typical.
Jump Mobile, the prepaid service from Leap Wireless International Inc., offers 10 cent per-minute outgoing calls and free incoming calls.
