Verizon Wireless disrupted the heavy margins collected from high-usage cellular customers last week by announcing an unlimited voice usage plan for $100 per month. AT&T and T-Mobile quickly followed suit. Sprint Nextel has a $120 to $160 per month unlimited voice, data, and messaging package that’s being tested in limited markets. The fine print on Verizon’s offer notes that fees and line charges are on top of this rate, adding between $4 and $35 per month depending on locality and other factors.
Shifting Fees, but Maintaining Revenue — This change in pricing has the potential to bolster revenue from some customers even as the carriers lose some of the richest plums – but they’ll make those constantly talkative customers happier. Cellular plans have always been a game of chicken. Some people choose plans with a low number of minutes to keep their monthly contract rate down, but then face overage charges of as much as 45 cents per minute. Others opt for plans with no monthly fee that have rates of 15 to 25 cents per minute when paid in advance, resulting in a payment of as much as $100 for just 400 minutes of usage a month. (Of course, many people choose prepaid plans because they’re wildly cheaper when few minutes are used; see Tom Schmidt’s “Prepaid: Cell Phone Plans for the Rest of Us,” 2007-07-23.)
This is one reason why I’ve been a happy AT&T customer, and Cingular before that: They include rollover minutes in most plans, and I haven’t had an overage with a modest plan shared by my wife and myself since signing up. Some months we use hundreds of minutes, some over 1,000.
Customers now paying $60 to $80 per month, but who regularly exceed their monthly allotment by as few as 100 minutes, may choose to upgrade to a $100-per-month plan to budget for what they’ll pay each month with no surprises.
Power callers, those who live on their cell phones, often pay exorbitant rates, over $200 per month, and sometimes still exceed the thousands of included minutes. These customers will see substantial savings, which makes them less likely to switch providers, which reduces churn, in turn reducing marketing and other expenses.
Carriers will make less absolute money from these customers on voice and other services, but may be better able to sell them upgrade packages that have relatively high margins and recapture some of the lost revenue. Verizon, for instance, might move customers from a $200 high-volume plan to a $140 per month plan that includes video and unlimited text messages; text messaging costs practically nothing per message, making most of its associated revenue pure gravy.
Industry sources have told me in the past that cellular minutes cost roughly 4 to 5 cents on a wholesale basis, but carriers have lower (and typically mostly fixed) expenses on their home networks. Costs are also lower outside of peak weekday hours. It’s unclear precisely what the average monthly minutes will be for “unlimited” call plans – do people cut their landlines at last and shift tens of hours a month to their cell phone? – but it’s likely to bring more revenue overall against a large set of fixed expenses in operating a network.
Plan Details by Carrier — Verizon Wireless’s basic unlimited plan includes no text messaging or data services. For $20 more per month, unlimited text messaging is included, while $40 more per month includes unlimited text messaging, video services, email, and their GPS navigation service. Data is charged at $2 per megabyte except with the highest-level plan, where data transfer is included. Family plans are also available without much of a discount until you hit three or more lines. Verizon will let customers switch without paying a change fee or renewing a contract.
AT&T launched its unlimited call plan on 22-Feb-08. The basic plan is $100 per month, while existing messaging and data plans can be added. A $5 per month add-on includes 200 text and multimedia messages, while $35 per month includes unlimited messaging and access to the network through its restricted gateways. AT&T will also allow a switch to this plan with no fee and no required contract extension.
No mention was made of any iPhone-related plans, although iPhone pricing is commensurate with other AT&T plans. The most expensive individual calling plan for the iPhone costs $220 per month for 6,000 minutes, including unlimited weekend and evening calling, and just 200 text messages, as well as unlimited EDGE data. An upgrade to unlimited text messages adds $20 more per month.
T-Mobile’s unlimited service started up on 21-Feb-08 and includes unlimited text and picture messages. The carrier requires a new two-year commitment to switch to the plan, but no change fees are added.
Helio, a mobile operator that resells access to Sprint’s network with its own unique handsets, also offers a $100 per month unlimited plan for voice, data, GPS services, and messaging, dropped earlier this month from $145 per month.
Sprint Nextel, the odd duck out in the announcements, made measured statements about evaluating offerings, and could hemorrhage even more subscribers. The company is in fairly dire shape as it has bungled its merger of the Sprint and Nextel networks, has invested hugely in the measured gamble that is WiMax data networking, and is far behind in a multi-billion requirement to re-outfit public safety departments across the United States as part of a spectrum swap that the U.S. government allowed to consolidate emergency frequencies and Sprint Nextel’s licenses. I expect they’ll have an announcement soon.