Somehow, I’m endlessly fascinated by the ways in which U.S. wireless vendors are finding to cut service prices and, in the process, still try to keep from looking like a cheaper, commoditized, me-too offering. Among the consuming public, which has an ever-increasing appetite for data sharing volume, this should look like good news. That said, however, it creates a realization that a) all wireless providers are essentially the same, and b) we have all be grossly overcharged for their services for years. And, what is clear to even casual observers, all the wireless vendors, in true commoditization fashion, are bottom-feeding on price.
Sprint, with minimal or negative revenue growth during 2014, has already reframed its pricing through a new low-end family data plan, having taken a big subscription hit on its Framily program. The latest cannon blast has come from T-Mobile, which recently cut the price of its unlimited shared data plan to $100 a month, a 29% reduction. Further, customers can add lines, at a rate of $40 per month for each line. Both Sprint and T-Mobile have been vigorously endeavoring to undercut AT&T and Verizon Wireless, but these carriers retaliated by coming out with promotions which increased the amount of data offered on shared plans.
So, the war continues. Some vendors advance, some decline. Both AT&T have about double the number of Sprint and T-Mobile; however, over the past eighteen months, T-Mobile’s acquisition aggressiveness has been very successful, resulting, for example, in the addition of over 2 million new customers in the last quarter alone.
Even with T-Mobile’s subscriber increases and Sprint’s price-slashing (coming off the failure of Framily), when EBITDA margins are considered, market analysts continue to look at the potential for a merger between T-Mobile and Sprint. Both have had margin challenges as a result of the promotional programs described. If this bottom-feeding keeps up, at some point U.S. wireless vendors may be paying us to take their service.
And, in this discussion, we haven’t even included the nation’s largest MVNO (mobile virtual network operator), TracFone Wireless (full disclosure….TracFone is my wireless provider), which has seen very attractive revenue growth, doesn’t worry so much about margin (though theirs is at about the same level as Sprint’s and T-Mobile’s through Q2, 2014). Because TracFone uses the networks of the major carriers, it is in a different category. Nevertheless, TracFone has actively entered into the pricing war with its bigger competitors.
What does the future hold in the vendors’ efforts to acquire new customers and retain existing ones? Customers clearly want less plan complexity, and they will gravitate to vendors and programs offering more data for less spending. Stay tuned, and keep your credit card handy.
