Wireless bills go up -- and stay up
Phone costs are ticking higher, even as competition increases among carriers.
This post comes from Thomas Gryta at partner site The Wall Street Journal.
Wireless bills are going up, and they are staying up. WSJ's Tom Gryta explains why, despite competition for smartphones, bills aren't going down yet.
While carriers have trimmed the price of their plans here and there in recent months, billings per user continue to grow amid a shift to smartphones and a surge in wireless Internet use.
The results call into question the notion of a price war in the U.S. market. Rather than aggressively compete outright on price, carriers are tailoring their moves to accomplish other goals as well, like weaning customers off expensive smartphone subsidies and encouraging them to use more data.
T-Mobile US Inc. raised the cost of its core unlimited data plan on Friday. The carrier says it has been competing more effectively by doing away with subscriber "pain points" like service contracts and international data fees. But its executives have also been signaling that they don't plan to start a price war.
"When you really analyze a lot of the pricing moves that have been made, there has not been a significant repricing," Chief Financial Officer Braxton Carter said at a Morgan Stanley conference last week.
To be sure, subscribers can find deals that weren't available before. AT&T Inc. on Saturday said it will cut the price of plans offering unlimited voice and text with two gigabytes of wireless Internet use by $15. A subscriber who brings or buys his own phone can pay as little as $65 a month, about 19% less than previously.
Last month, Verizon Communications Inc. raised the wireless-data allotments on similar plans, effectively lowering their cost. T-Mobile made that same adjustment to its tiered data plans on Friday, even as it raised the price of its unlimited plan by $10 to $80 a month for a single user.
Still, billings for the industry's lucrative postpaid customers are continuing to rise.
Average monthly revenue per postpaid customer across the industry rose 2.2% to $61.15 in the fourth quarter, according to New Street Research. That is up more than $5 per user from the first quarter of 2010, when the same measure was at $55.80.
New Street's data adjusts for the fact that T-Mobile generally doesn't subsidize phone purchases. In the past, carriers would pay hundreds of dollars of the cost of new phones then recover it over the life of a two-year contract by adding it into subscribers' bills.
With that embedded subsidy gone, monthly service fees are lower. Customers aren't actually turning over less money, however, because they typically now pay off their phones in monthly installments using carrier financing plans. Mr. Carter, the T-Mobile CFO, said in an interview last month that the total amount the carrier is collecting from its customers on average has gone up.
The high cost of smartphones and data plans means Americans are on average spending more every month on their phones.
Overall, the average monthly revenue per user across all U.S. wireless customers has recently reversed a long-running decline and rose 0.9 percent in the fourth quarter from a year earlier, according to research from MoffettNathanson.
In the past year, the country's largest carriers have bought up most of the smaller ones that offered cheaper prepaid service. T-Mobile acquired smaller rival MetroPCS Communications Inc., and AT&T has agreed to buy Leap Wireless International Inc.
"When it comes to the monthly prices that people pay, those continue to go up," said Matt Wood, policy director at public advocacy group Free Press. "It has gotten a little more competitive lately, but it isn't effectively competitive yet where the big two have to lower prices."
Market leaders AT&T and Verizon themselves played down the notion that competition on the basis of price has heated up. Representatives for both said Sunday that they also compete on network quality, for instance.
"I think it is interesting given my years in the industry, how you hear things like price war and all that being kicked around in the media today and this is really nothing different than we have seen over the last couple of decades," Verizon Chief Executive Lowell McAdam said on a conference call last month.
Both carriers have an incentive to reassure shareholders worried about their margins. But T-Mobile seems to be on the same page. "I think Lowell put it really well," Mr. Carter, the CFO, said last week.
While the overall effect on prices by the moves and counter moves is muddled, one result is clear: Subscribers are increasingly being moved off plans that offer less-costly, subsidized phones in exchange for signing two-year contracts.
Shifting away from contracts makes it easier for subscribers to switch carriers. But it also gets carriers out from under the burden of providing the subsidies, an expense they have been eager to shed.
Carriers are also successfully moving their subscribers over to smartphones with data plans.
AT&T and Verizon Wireless did away with unlimited data plans for new customers years ago.
In their place, they adopted tiered plans that have positioned them to charge subscribers more when they watch more videos or play more games over the wireless Internet. Unlimited plans were becoming uneconomical, the carriers said, given the cost of building the networks needed to support the traffic.
T-Mobile said Friday that data demand has been soaring under its existing plans. Overall, the company said its subscribers use nearly 50% more data now than they did a year ago. Monthly usage on unlimited plans has nearly doubled and exceeds five gigabytes, it said.
Mike Sievert, T-Mobile's chief marketing officer said Friday that the move to raise prices for unlimited-plan customers partly reflects the cost of providing such plans. He said unlimited-plan users aren't the majority of the carrier's customers.
T-Mobile ended 2013 with a big increase in subscribers and projected more gains this year, but in the process hurt its margins and widened its loss in the fourth quarter.
A wildcard is Sprint Corp. People in the industry have expected aggressive moves from the company after its acquisition last year by SoftBank Corp. , which used fierce competition on price and unorthodox marketing to win customers in its home market of Japan.
Sprint has been hobbled by a tricky network upgrade. Company executives say they can't aggressively go after customers until the network can handle the extra load. That work is expected to be wrapped up in the middle of this year.
More from The Wall Street Journal
Get rid of the odumber phones that will take $3.00 off the bill.....
Again here is the middle class supporting the freeloaders....... Like Dave..
Walmart will soon displace the phone companies and health care companies as a viable alternative......................believe it or not.
It is time to just cut off the cell phones. period, turn the damb things off and lets go back to paper
that will screw the nsa up real good.
These cellphone company are getting ridiculous the prices of just basic service is so expensive. I just need my phone for basic, just talk minutes, no texting no nothing. Our bills should not support Obamas free phones program.
I am thinking of going back to just a home phone, people will just have to wait for me to come home and get their messages. I do like the accessibility of having a cellphone, but not the prices. I would love to get one of the cheap phones, but in the Mountains of NC Verizon is the only service we can trust, not even AT & T works good there it keep dropping the calls or won't even dial through. So we are stuck w/ Verizon's high prices.
Some people are so obsessed with their phones, its ridiculous, they text when driving, or they are talking that they don't pay attention to their driving, causing accidents & causing deaths, over a damn phone.
Sometimes I feeling like saying to friends, leave your cellphone outside my door before entering. This goes to the young & the old. I love having company coming over, but if we are hanging out, its very annoying they are holding a conversation with their cellphone at the same time.
As consumers, as long as you want it, gotta have it and can't do without it...you're gonna pay for it.
And Wal-Mart will rule the world.
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