Phillip Redman

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Phillip Redman
Research VP
10 years at Gartner
17 years IT industry

Phillip Redman is a research vice president in Gartner Research, where he leads mobile research in the network services and infrastructure group. Mr. Redman brings almost 15 years of experience in the wireless mobile and telecommunications industry… . Read Full Bio

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Wireless Data Pricing Reaches A New Low

by Phillip Redman  |  November 9, 2010  |  2 Comments

Back in 1995, one of my first big wireless research projects was on pricing elasticity.  At that time, a wireless voice minute cost about $2.25 and only about 13% of the population had phones.  These were mostly business people who could get reimbursed for their use.  In the industry, the widely held belief was that the cost of the phone was the biggest inhibitor to adoption.  This led to subsidizing the phone, but growth was still tepid.  What seems obvious now, but most were slow to recognize then,  was that the cost of the service prevented most users from adopting phones.  Once digital networks were launched, which increased capacity 4-10 times to that of the existing analog services, the cost per minute dropped rapidly.  Today the average customer spends about $0.06 per minute.  This same thinking is going into the recent price reductions for wireless data services that were announced by AT&T and Verizon Wireless in the past few months.

Recently AT&T and Verizon Wireless announced new tiered data pricing plans that are starting to move away from unlimited data, as seen in the table below (and predicted by me in a research note in January 2009).  T-Mobile is expecting to respond to a $10 low-end pricing at the end of the year.  Sprint currently bundles voice with its data pricing.

Carrier

Low

Medium

Unlimited

AT&T

$15 (250 MB)

$25 (2 GB)

$30 (for existing users only)

T-Mobile

$25 (200 MB)

NA

$40

Verizon Wireless

$15 (150 MB)

NA

$30

How did we get here? At first, unlimited data was a way to provide a predictable monthly charge for those who weren’t sure how much they would use each month.  As  BlackBerry devices dominated, their low usage (averaging about 4-6 MB per month) meant high profits for carriers.  Adoption of these data services helped make it a significant portion of a wireless carriers’ revenues, replacing declining voice revenues.  But in the past two years, devices with heavier data usage, Apple iPhone and Android devices (which can average 250 MB per month for some users) started to erode profits.

As adoption of smartphones and data plans increase, carriers once again are dropping prices to support lower-end users, mainly on Web-based and (non-corporate) email services. Anyone using wireless apps for video or audio streaming, gaming or file transfer will use well in excess of these low-end plans and will stay on the unlimited service.  Voice pricing is also seeing a decline but in a different way as Verizon Wireless looks to lower its bundled voice and data plans for some users, competing with Sprint’s successful bundled packages.  In the next couple years as next generation networks are launched, we’ll see a variety of new plans, many bundling in voice and data services, as carriers look to expand their offerings to more users.

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Category: Apple AT&T cellular mobile phones Networks RIM Sprint Nextel Verizon Wireless wireless carriers     Tags:

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