Verizon Wireless lobbed tear gas into its competitors’ business plans by offering a $100-per-month unlimited voice calling plan last week. Spurred into action, AT&T and T-Mobile followed suit with their own offerings the same day. Sprint said it would wait and see; last week, the company saw the light at the end of the tunnel, which was the headlamp of an oncoming train, not open skies. In response, Sprint announced a vast writedown – reducing the value of its merger with Nextel to 10 percent of its acquisition price – and matched its competitors’ unlimited offers with $90 and $100 plans. (For details, see “Three Cell Carriers Offer Unlimited Minutes for $100 per Month,” 2008-02-19.)
Sprint’s apparently unnamed $90-per-month plan beats its competitors on included services and price: for that fee, you get unlimited voice minutes, push-to-talk service (an immediate talk, walkie-talkie like feature pioneered by Nextel in the United States), and unlimited text messages. Verizon charges $100 for unlimited minutes of voice calling and $20 extra per month for unlimited text messages; T-Mobile includes data and text messages in its $100 per month plan; and AT&T has $5 to $35 options on top of $100 for a variety of data and text options.
For $100 per month, Sprint will offer Simply Everything, which matches Verizon’s $100 plus $40 add-on offering. Sprint includes unlimited data and text messages, as well as its streaming media TV service, its music service, GPS navigation, and the unlimited text messaging and push-to-talk that’s part of its $90 monthly plan. No contract renewal or extension is required to switch. Multiple lines in a family plan also are somewhat cheaper than Sprint’s competitors.
The combination of services and the all-inclusive price make it more likely that existing Sprint customers with any data or text-messaging usage would save between $20 and $150 per month. But it’s also more likely they’ll stay, and Sprint might be able to stop the horrible loss of customers it’s facing – announced yesterday during an earnings call – that threatens its future.
Sprint said it would take a one-time writedown of $29.7 billion, or most of the value of Nextel at the time of its acquisition two years ago. The company’s execution has been terrible, and a recently hired CEO announced a series of efforts to shed employees, close stores, and stop the hemorrhaging of customers. This writedown is the fifth largest in history.
While charging less seems a bad way to earn more, cell carriers can spend between $200 and $600 to acquire a single customer among all their expenses: subsidies of cell phones, promotions, incentives (I was once offered $400 by T-Mobile to pay cancellation fees on my Cingular lines), and marketing. Due to cellular number portability, which lets a customer move the same phone number among carriers and landline operators, subscribers stay for ever-shorter periods of time. Keeping a customer an extra year means Sprint makes money in that extra year, even while charging less per month.
Charging the same amount each month also benefits both carriers and customers. The carrier can book revenue and collect it more efficiently with less focus on accounting, and less customer service expense when call and data records go awry (a frequent complaint). Customers can budget their monthly usage fees ahead of time, and stop worrying about going over and facing huge “gotcha!” charges.
Next, let’s see the credit-card industry voluntarily choose to restructure itself around making sure those with good credit aren’t charged ridiculous fees when they’re one day late, those with bad credit get less credit and tools to pre-pay and manage credit, and those who are working their way up be charged appropriate fees and rates as they prove themselves.
Sounds like a joke, right? But who thought the Berlin Wall would fall in our lifetime; the Soviet Union and apartheid in South Africa would collapse relatively bloodlessly; that a man born in Panama (John McCain), a woman, and a man of color would have equal chances at the White House; and that cell carriers would give up crazy overage charges in the name of competition and simplicity?