The Days of Pricey Cellular Service Are Ending

 Who says big price decreases can’t unexpectedly occur in any industry?

As oil prices grab the headlines by falling by 50% in a year, now there is a major revolution taking place in the consumer cellular industry. One part involves pricing, one part involves eliminating the requirement for a contract and the third involves the move to Wi-Fi delivered phone calls and Internet connections when the subscriber is away from home.

Following in the trail originally blazed by T-Mobile USA and then followed by Sprint, Verizon and AT&T, which have quietly started offering no-contract plans at reasonable monthly rates. The terms are strictly month-to-month. The subscriber buys the phone. Here for examples are prices and rates for the pre-paid service from Verizon, the US’ largest cellco.

1. Phone Prices:
Verizon offers a number of phones at: http://www.verizonwireless.com/prepaid/smartphone-plans

Examples of current prices are:

Model Price in dollars

Samsung Gusto, a basic flip phone $50
Apple iPhone 4 $100
iPhone 4S $150
iPhone 5S $550
Samsung Galaxy S5 White $600
There is no activation fee. Walmart offers the same Samsung Gusto for $12.99 but Verizon charges $35 to activate it.

2. Monthly Rates:
Verizon charges $45 a month for:
– Unlimited talk time, text and picture messaging in the US
– 1GB of data and additional data is available for a fee with a 90-day carry over
T-Mobile USA has typically kept its monthly rates lower than Verizon’s and offered more free monthly data.

3. Free public access Wi-Fi:
Free Wi-Fi hotspots are increasingly available. For example, the cablecos in the States have banded together a near-nationwide archipelago of Wi-Fi hotspots that are free to all of their subscribers. Cellular customers can of course connect free to the Wi-Fi in their homes and offices plus most hotels, coffee shops and many stores.

This change has already taken place in France where Free took the lead in reducing monthly rates and eliminating onerous contract terms by creating a network of cells and Wi-Fi hotspots. See: http://techcrunch.com/2012/09/03/how-the-telecom-company-free-disrupted-the-mobile-landscape-in-france

The change has recently started in the UK and has now come to the States.

US cellular companies that once boosted big profit margins have started struggling with the latest trend.

The move benefits content companies who will find their audience can spend less on delivery and more on content.

These trends in the cellular industry may not have as big an impact as the recent decline in oil prices is having on consumers and oil companies but declining cellular rates will keep money in consumers’ wallets and purses — and bring some angst to the bottom lines of Verizon and AT&T.

 

There’s No Free Lunch

Tim Hoettges, the chairman of Deutsche Telekom (DT), which owns two-thirds of T-Mobile USA, this week warned that T-Mobile’s gains in the United States are short term and that it needs greater scale in the US to compete against AT&T and Verizon. The FCC recently rejected a bid by Sprint to acquire T-Mobile USA because it reduced the number of major cellular services. Hoettges is particularly concerned about being financially able to bid for more spectrum against AT&T, Verizon and Sprint, which have greater financial resources. He estimated that T-Mobile USA needs to invest between $4 billion and $5 billion each year just to keep up. T-Mobile USA is not exactly a money spinner. It lost $94 million on revenue of $7.4 billion.

DT may not be able to let T-Mobile USA continue its aggressive marketing approach for long, but the horse has left the barn. It’s not just that cellular services cost consumers less, it’s also the threat of free Wi-Fi that’s pressuring cellular rates.

Wouldn’t it be good for consumers if there were, like in cellular, a similar situation in wireline broadband?
– 4 major nationwide competitors instead of two — the cableco and the telco
– Lots of local cellular services
– Third party resellers such as Walmart who sell services that use other companies’ networks
– A free or near free wireless service …

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