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With the advent of the new Boost national $50 Monthly Unlimited plan, many consumers and industry watchers were hoping that the prevailing national $99.99 monthly unlimited calling price point would drop and a price war would ensue. Will national carriers drop their plans to meet this new low? It’s wishful thinking but it won’t happen anytime soon.
Why? It helps to understand the broader picture and the competitive landscape. Let’s rewind back to Feb. 19, 2008, when Verizon Wireless was the first carrier out of the blocks with a $99.99 national unlimited calling plan. Industry watchers were shocked. Many, including me, had pegged Sprint Nextel Corp. to make such a move since they had been experimenting with Unlimited Access Packs, an unlimited all-inclusive calling and data plan as early as February 2007. Sprint expanded the experiment to additional markets later in the year. The precursor and variant of what we know today as Simply Everything was priced at $129.99. While Sprint’s Unlimited Access Packs were in limited promotion, a rarely publicized but commercially available national unlimited calling plan was available at most carriers for $199.99. Given the status quo of $200 for an unlimited calling plan, a $119.99 offering that included data seemed like a radical departure and threatened to rock the boat. So what was the significance of $99.99? If one backs out $20 as the data plan value from Sprint’s plan, we arrive at just under $100. Besides, pricing a plan under $100 always enables good psychological marketing spin.
Ultra competition
What happened in a span of hours and weeks in February showed how competitive the industry is. Within hours of Verizon Wireless’ announcement, AT&T Mobility joined the fray and matched it. Hours after that, T-Mobile USA Inc. also played but included unlimited messaging as part of the $99.99 in a way to differentiate itself. In the ensuing days, regional carrier U.S. Cellular, Alltel and Sprint met the price point but added their own differentiated features. Perhaps the most prominent differentiation was made by Sprint in its Simply Everything plan that, threw in messaging, data and navigation on top of unlimited calling. Many called this set of events a price war. I’d like to think of it as a value war where the price point remained the same but smaller players had to throw in specific features or the kitchen sink (in Sprint’s case) to extend the value perception. There is no doubt that the industry behemoths are Verizon Wireless and AT&T. When the big guys moved (accounting for nearly 140 million subscribers at the time), every competitor had no choice but to move; otherwise they would have been competitively vulnerable.
Regionals step up
Meanwhile regional prepaid unlimited carriers such as MetroPCS and Leap Wireless basked in the national moves to $99.99 as they brought awareness to their business models, which professed unlimited calling for half of what national carriers were now offering. Indeed, MetroPCS built a marketing campaign equating its unlimited calling to those of national carriers. While the differences were in footprint and coverage, that never stops marketing, with the intent to affect user perception. But Sprint’s prepaid unit Boost Mobile also jumped into the regional unlimited calling game in March 2007, with Unlimited by Boost, an experimental competitive offering specifically directed at MetroPCS and Leap. Price points varied and were tweaked market to market but for the most part Boost offered a wider calling area and a cheaper roaming rate as differentiators. Uptake for the plan was modestly successful for Boost but Leap and MetroPCS never saw Boost as a huge competitor as they continued to grow in core markets and enter new ones. While the Boost-MetroPCS/Leap contest continued to play out, another prepaid player was hoping to set itself apart and cut into the national scene.
In late June 2008, Virgin Mobile launched Totally Unlimited, a national unlimited calling plan priced at $80 a month, undercutting national carriers by $20. There was a lot of press but alas no reaction from the national carriers. To be sure, Virgin Mobile is a known brand that has offered prepaid services for years but a carrier with just over 5 million subs cannot substantially erode postpaid players’ customer bases that number in the hundreds of millions. Still, a Virgin Mobile prepaid competitor, NET10 (a unit of TracFone) came out with a matching $80 plan exactly a month later. While the postpaid world is competitive, the prepaid segment has seen a lot more plan movement which brings us back to Boost Mobile. Throughout Q4, Boost and Sprint executives hinted at a Boost unlimited product revamping and said it was going national. Industry insiders theorized that it was going to be a revamping of Sprint’s plans provoking another newer and lower price point. Well, the new price point came in January and it’s $50 from Boost but not from Sprint. The new price point undercuts every player. So far no one has matched. Is that surprising? No. The same principle holds true for the Virgin Mobile $80 action. Boost is small (under 4 million subscribers), it is prepaid and it is undercutting prices from a position of weakness, trying to come back. Indeed it will get its share of postpaid users, prepaid users and a piece of wireline substitution but it will hardly make a dent in the national scene. But how can Boost get away with such a low national price point? For one, $50 appears to be a sweet spot and meets MetroPCS and Leap’s comparable plans. Also in Boost’s pocket was the underused and capacity-abundant iDEN network that has seen much outward customer migration. Finally, Verizon Wireless and AT&T are looking to stabilize and increase margins. Any price war is counterproductive to that goal and would be frowned upon, especially in the financial community. In a nutshell, where there is no competitive threat, carriers do not react. All this gives Boost somewhat of a competitive advantage with which to focus on taking share from Metro PCS and Leap.
For now, national carriers aren’t totally worried about these regional unlimiteds because their footprints are constrained, but as the years pass, both MetroPCS and Leap will have aggressively expanded their footprints. In 2009, both carriers are looking to enter major metropolitan markets such as Boston, New York City, Washington, DC and Chicago. Entry into densely populated markets is fundamental to both carriers’ business models and a faster way of grabbing marketshare. While the combination of the regional unlimited players and Boost can make wireless life interesting and competitive, it will not likely force national carriers to drop unlimited plan pricing. Unless MetroPCS and Leap consolidate with a true national footprint, the threat will not be real. Until then $50 will be the prepaid unlimited bar while $99 remains the postpaid one.