Morgan and Stanley Study – Consumer Decline in Voice CallsCell phone plans were first introduced in the 1980’s. Mobile carriers believed that customers should pay based on minutes used. As cell phones became more prevalent in the United States, mobile carriers created confusing “buckets of minutes,” expensive over minute charges, activation fees, overpriced text message and data billing plus two-year lock-in contracts. Carriers believed that two year contracts were necessary to recover handset and marketing costs.
Eventually consumers began filing complaints with the FCC and consumer protection organizations. Meanwhile J.D. Power, the leading rating organization revealed in studies that consumers were dissatisfied with the carriers” pricing and poor customer service.
Carrier Cell Phone Plans vs Skype and Google Voice
In an age of smartphones, used increasingly for data and voice led to VoIP services offered by Skype and Google Voice, Consumers believed that they were paying to much for their cellular service. After all, if Skype and Google could offer much lower prices for voice, texting and eventually two-way video calls, why were the carriers charging so much?
Increased competition and the current Administration’s emphasis on high speed broadband for Internet access would soon change the wireless landscape.
Morgan and Stanley Mobile Internet Report
Morgan and Stanley claimed in its December, 2009 report that mobile phones were increasingly about data–not voice–especially among smartphone users. Yet cell phone plans for consumers and businesses kept rising.
After AT&T Wireless in 2007 gained millions of new customers due to its iPhone deal with Apple, other carriers and handset manufacturers began offering comparable data devices to increase profits in data rather than voice.
Data-intensive mobile phones led the carriers to change their cell phone plans, tacking on $30-$50 a month for wireless Internet, texting, email and other data services. Instead of paying $40-$70 a month for voice and texting, consumers watched their cell phone plans rise to $100 or more for individuals and shared plans.
Meanwhile, the ratio of voice calls to data usage continued dropping from 70% to only 45% for iPhone and other smartphone owners. But carriers were reluctant to lower their charges for voice calls until they experienced high customer churn.
Customers began demanding greater access to mobile data available on smartphones. The iPhone browser improved users’ mobile Internet experience while iPhone applications increased demand for information and entertainment.
Soon, other carriers, handset manufacturers and application developers entered the market offering improved device performance with Android, Windows and other mobile handsets.
The Market Challenges Mobile Carriers
Sprint/Nextel and T-Mobile were especially hit hard as millions of dissatisfied customers switched to AT&T for the iPhone and Verizon Wireless for its faster, more robust wireless network. Cell phone pricing was about to change.
In response to high churn rates among contract customers, Sprint became the price leader with its “Simply Everything” individual and shared cell phone plans. (Sprint offered the least confusing and costly cell phone plans of all major carriers.)
Sprint Individual Cell Phone PlanT-Mobile cell phone plans appeared straightforward, then increased in complexity with the add-on options: Internet, email, music, international service, accessories, insurance and more.
Phone insurance, visual voicemail, ringback tones, roadside assistance, detailed billing, 411 info and accessories became up-sells that raised customers’ initial, monthly and two-year contract costs.
However, the highest cost–and the most lucrative for Verizon and other carriers–was data. Customers who didn’t choose an unlimited data plan were billed $1.99 per megabyte. As customers exceeded each megabyte, Verizon charged another 1.99 even if if customers didn’t use the full amount.
Changes at Verizon were in the making, however. During the annual Mobile World Congress even, Verizon announced a partnership with Skype, allowing some Verizon smartphone owners full use of Skype’s calling and texting services.
AT&T Mobility decided to off the most flexible and confusing cell phone plans.
Customers paid extra for early nights and weekends, GPS, insurance, international service, text messaging and mobile TV. Want more? How about detailed billing, parental controls, voice dial, Xpressmail, AT&T Navigator for iPhone and other handsets, push-to-talk, roadside assistance, video share, visual voicemail, enhanced voicemail and voicemail to text. Choosing cell phone plans made customers dizzy.
Sprint, on the other hand, offered all features available on each handset at one price, excluding insurance and a few other options.
The Confusing World of Cell Phone Plans
After reviewing the four main U.S. wireless provider’s individual plans, it seems to me that instead of increasing customer cellular plan choices, the carriers have made choosing a cell phone plan difficult and costly. Sprint/Nextel with its Simply Everything plan and Verizon Wireless’ recent “Share Everything” plans may be exceptions. Wait and see.
Choosing carrier cell phone plans is a “deer-in-the-headlight” experience. Carriers claim they offer choice. Instead, they offer a complex and confusing buying experience.
Many cell phone plan purchasers don’t realize their long-term commitment. A two-year contract with any of the carriers that includes a data plan costs a minimum of $2,500.
Adding accessories, other services, taxes and fees, most consumers will pay nearly $3,500. If the two-year contract is broken, customers pay an additional pro-rated early cancellation charge that has risen to nearly $400 for smartphones in 2012.
Purchasing a mobile phone and cellular contract is a major buying decision unlike any other. Buying an HD television, audio system, refrigerator or even a computer is a one time charge and, at most, includes a service contract. Even choosing a broadband Internet service is less expensive than making a two-year commitment to a wireless provider.
New Era of Mobile Services Require New Cell Phone Plans
Fortunately, a new era of mobile internet devices and services is emerging and directly challenges wireless carriers to lower costs and offer greater value.
Apple started the evolution of the wireless industry when it signed a contract with AT&T to market the iPhone. This was the first time a handset manufacturer controlled cost and distribution of a single handset. In the past, mobile operators controlled handset pricing and distribution to consumers.
Most recently, Google outlined a aggressive plan to build very high speed wired broadband services that could positively impact wireless broadband as well. Internet broadband companies–cable, satellite and DSL–are very concerned about Google’s moves into broadband.
The FCC and Congress are also investigating practices within the wireless industry to prevent overcharging consumers and stifling competition.
The Future of Cell Phone Plans
To remain competitive, U.S. carriers, already concerned about their peers’ pricing, have created lower cost mobile-to-mobile individual plans. Sprint is aggressively promoting its $80 per month unlimited voice and data plan. Meantime, Verizon Wireless’ Share Everything plans offers one to ten gigabytes of data shared by up to ten people.
But the difference in cost from gigabyte to gigabyte is only ten dollars, obviously intended to encourage customers to buy more even if unneeded. Average smartphone users consume less than 500 megabytes of wireless data per month.
Growing competition from Internet-based services will eventually force the carriers to reduce rates and simplify cell phone plans.
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