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Summary:

I’ve been watching the mobile industry commit hara-kari over the past few days. US Cellular is the latest to join this mad dash to the bottom. Their new $99 unlimited calling plans make me wonder if they have actually thought through this move and its long-term […]

I’ve been watching the mobile industry commit hara-kari over the past few days. US Cellular is the latest to join this mad dash to the bottom. Their new $99 unlimited calling plans make me wonder if they have actually thought through this move and its long-term implications.

A friend of mine, a veteran of the long-distance wars who’s worked with the phone companies, both the wired and the wireless kind, described the big three mobile carriers — Verizon, AT&T, and T-Mobile — as dumb, dumber and dumbest.

These moves remind him of the crazy 1990s, when Sprint, MCI and AT&T fought over long-distance minutes by offering lower prices and thus slowly destroying their ability to make money to support their bloated infrastructure. It’s pretty much the same situation here — but the pain is going to be felt much sooner.

Here is why: I am one of the high-end customers of AT&T, locked into a 2-year contract for my iPhone. I’ve been paying $99 a month (plus about $40 for data and messaging) for 2,000 rollover minutes, free weekends and evenings.

It’s never been tough for me to go over the 2,000 minute-limit, since my mobile is my primary phone. Result: I end up paying between $25 to $150 in overages, depending on the amount time I spend on the phone. I am the perfect customer, the kind that makes up for the ones at the bottom of the pile who either don’t spend enough money or didn’t care to get big buckets of minutes.

But now I am going to get an unlimited plan. And that is the big question: Why would you as a company limit the amount of money spent by some of your best (and I mean high-spending) customers? I suspect most of the people who are going to sign up for these $99-a-month plans are going to be folks like me — existing customers who are looking to bring their  wireless bills under control.

These are particularly attractive options for small biz, startups and web workers. Now your communication costs are pre-determined, which is a good way to budget. I am asking the GigaTEAM to switch to a $99 plan (on offer from whatever mobile operator they use) and also putting the PBX-land line option on hold…forever.

  1. Jesse Kopelman Friday, February 22, 2008

    I don’t know, Om. I think you are coming at this from a bit of a skewed perspective. What’s ARPU these days, $60/month? That’s a lot closer to the cheapest rate plans than the $200/month you claim to be spending (counting data and overages). Simple math tells me that customers like you are in such an extreme minority that you aren’t doing much to bring up the low end of things. I think the carriers are going with the assumption that a lot of people on $80/month plans are going to step up to unlimited and that this additional revenue is going to more than offset the losses from people like you. Where they might be in trouble is how long they can hold the line on $99. If Xohm ever actually launches, one would assume you could use something like Skype on that service and be paying a hell of lot less than $99 for unlimited calling.

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  2. I have saved money by going from ATT premium plans to the cheap plan and paying the overages, both on voice and data, and I am not a light user. The math is complex.

    During the long distance wars of the 90’s. Sprint Canada has an Unlimited no cap plan – they had to can it, as radio stations started using it for voice back haul from sporting events. You know, leaving the connection up for 5 hours, instead of paying for a commercial audio feed from the broadcast aggregators. Individuals were doing this too, so Sprint started putting a per call clock on – max 2.5 hour per call, then disconnect.

    If I could get unlimited voice (or, like 2000 mins) and unlimited data for 99, that would be like my old ATT plan, all the data at a ridiculous 40 /month, and 1000 mins voice at 79. Ouch….

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  3. Om,

    The all you can eat buffet is definitely going to cause some puking in the cellular world.

    Like you, I tend to go over my monthly minutes and hated the overage charges I used to get on my monthly bills. It was one of the things that led me to start RingBranch (http://www.ringbranch.com). As a T-Mobile MyFaves user, I can talk as much as I want and not worry about going over my quota minutes. And I get to stay on a lower cost plan. (Sorry we can’t help you since you are on AT&T.)

    Regards,

    Allen Graber

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  4. You’re the exception. 83% of cellular users overbuy their plan. Very few people go over. The carriers make way more on under breakage than overage.

    http://foneshow.blogspot.com/2007/10/83-of-cellular-users-overbuy-their-plan.html

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  5. I agree with Om that a pricing driven strategy is all wrong. Any advantage price discounts give you tend to be wiped out quickly as competitors match your offer (last week $99 bucks might have sounded like a great deal, today it is the standard). The price crunch is coming — there is no need to accelerate it.

    The mobile carriers need to fix the relationship they have with customers by creating new kinds of value for them. There is tremendous amount of confusion among everyday subscribers about how to get the most out of their phones (iPhoners excluded). Rather than positioning themselves as trusted advisers and helping the consumer navigate the technology choices available to them, the carriers have been content to emphasize commodity attributes of their offering (price, network quality, self-expression).

    The utility model is broken in an age where handheld devices are the key convergence appliance–one that is sure to radically change the marketplace in the next 3-5 years. By carrying on as providers of a dumb pipe, the carriers will ensure their own demise.

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  6. for one this inevitable. i believe the carriers are much more interested in increasing the spend of there majority customers than they are concerned about a drop from a few big customers. the reality is that i would guess by the end of 2008 all cell plans will be unlimited. once they get rid of the minute meter completely for domestic calls they can save on thing like customer service related to billing issues, etc. and the rates will come down its going to be a lot closer to $50 than $100 for unlimited voice; but at $50 that is still $10 than they get now from the overwhelming majority of customers who are on $39.99 plans.

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  7. Verizon and AT&T have a distinct difference in plans for regular phones and smartphones. Smartphones will probably not be eligible for these unlimited plans, especially from a data standpoint. These plans are going to focus on the people that talk and text a lot. If you have a smartphone, I think that you will be out of luck in moving to these unlimited plans.

    Also, the press releases for both companies do not mention the family plan aspect of these new unlimited plans. I bet we won’t see family unlimited plans for at least 3-6 months if at all.

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  8. Compliments of SAI (http://feeds.feedburner.com/~r/typepad/alleyinsider/silicon_alley_insider/~3/238858164/verizon_99_dollar_unlimited_cellphone_plan_wont_kill_us)

    VZW says that less then .5% of their base have plans over $99 and they think that money lost to that (and potentially overage people like you) will be made up by lower price plan users moving up to the $99 plan.

    Yeah, the .5% is based on people with plans while it doesn’t talk to additional revenue generated by overages – that would be interesting to know.

    I’m just guessing that they ran some statistical analysis and calculated the haircut lost from the high end revenue generators (both plans and overages) would be made up for with additional revenue generated from lower price plan people stepping up.

    I do agree that the “race to the bottom” isn’t healthy for anyone. One difference between the LD services in the 90’s and wireless providers now is that LD only had one service to offering – that long distance servive – while wireless providers can cross-sell data, ringtones, etc.

    r.

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  9. Convincing people that telephony has a per-minute cost is one of the most lucrative scams ever perpetrated. In a competitive market, you wouldn’t expect prices to artificially higher than costs forever. You will note these plans do not offer you unlimited or unrestricted data, and do not cover international calls, where for some reason the FCC has not imposed a choice of long-distance provider the way you can with land lines.

    The cellcos want to give a push to the landline to mobile migration, and a swift kick to cablecos for voice market share, that’s all. At some point, they will realize the cost of maintaining the per-minute billing infrastructure outweighs the additional revenue and move everyone to either prepaid or unlimited plans.

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  10. Om,

    I have to not only agree with Jesse here, but i’d add the carriers are likely targeting market adoption of data services. These services have better margins and tremendous revenue upside with market take up. Hence, if you can get the average $80/month user to upgrade to a $99/month unlimited plan, plus add on $30/month unlimited data (for example), then the average user just contributed an additional $50/month. This seems to be the carrier strategy here, at least in my opinion.

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