AT&T and Verizon both recently dropped prices on unlimited calling plans by $30 a month. But other changes make it possible—likely, even—that the wireless providers will make more money off of the typical customer.
The price cuts, while lauded as a step up in competition that should in theory benefit the consumer, don’t seem all that impressive. At the same time Verizon and AT&T’s unlimited talk plans decreased from $100 to $70 a month, and plans for fancier devices like the Droid and iPhone dropped from $130 to $100, new and higher charges have been added for other services, such as $20 more for unlimited texting and $10 or $30 extra for data plans.
So in terms of the actual dollar amount that appears on your bill, the price “cut” may amount to no change whatsoever: One hand gives, and another fee takes back. AT&T and Verizon are in fact expecting to make more money with these changes—because the new pricing structures will push customers into higher-tier plans. Per the WSJ:
Verizon, which is jointly owned by Verizon Communications Inc. and Vodafone Group PLC, said it expects the changes will slightly boost revenue, as lower rates keep high-end customers from leaving and more money pours in from data services.
“We think the structure will drive higher penetration of data services,” said Verizon’s Mr. McAdam. An AT&T spokesman said the company also expects its changes will result in more subscribers having data plans.
The WSJ calls what’s happening now among the wireless providers a “pricing war,” but it seems like more of a gentleman’s agreement than a war. They are price matching, not one-upping each other. And while, yes, part of the intention is to attract customers like in any price war, the mission seems plainly aimed at getting more out of each customer over the long haul. This is the same purpose of the absurd fees that wireless providers assess on customers who go over their allotted minutes or texts. Providers smack customers with these fees not only because they bring in immediate revenues, but because customers get so angry with the fees they are likely to opt for a more expensive plan, probably with unlimited usage. Wireless providers love it when customers go with the unlimited plan: It’s more money guaranteed in the providers’ pockets, and once the customer gets used to not worrying about how many calls or texts he makes, he doesn’t want to worry about it ever again. Many customers, however, would be better off paying $10 or $20 less monthly on the cheaper restricted plan, even if they incur some occasional overage fees.
I’m not so sure that AT&T and Verizon will in fact wind up pulling in more money with their latest changes. Consumers are becoming increasingly aware that cell-phone usage can be much cheaper outside the U.S., that text messages cost next to nothing for a provider to transmit (0.3¢ per text, by one estimate that I haven’t heard refuted), and that there are more and more cheaper (though lower-tech) alternatives, such as prepaid cell phones with $45 monthly fees for unlimited calls and texts, or even cheaper options, like $30 a month for 1,000 minutes and 1,000 texts.
Or are we aware of just how much we spend on cell phones and plans? To some extent, we’re sheltered from the true costs of cell phones. The costs of the handsets themselves are subsidized. When you buy one and sign up for a plan, no one does the math for you to tally up what, after various fees and service charges, you’d truly pay per month, let alone what the thing costs you over the course of a year—or two years, as most service contracts mandate. If consumers saw those true costs listed clearly on the price tag of each cell phone, I wonder how many would still go with the fancy smartphones and unlimited plans. By doing some quick math in my head, over two years’ time, a prepaid phone with a basic plan might cost you $800, while a Droid or iPhone or Nexus One with an unlimited plan would easily run you something like $2,500.
For many people, the smartphone is still what they’d choose, even if it means forking over $1,700 more. How many others would balk if they realized such a price difference?
Thus far, consumers have been regularly amazed and confused by the dizzying, constant innovation in cell-phone and smartphone technology. They’ve also gotten fairly accustomed to being confused by the varied, overly complicated rules in service plans, and the sheer number of plans to consider. Verizon recently had as many as 80 plans to choose from. (Another reason to go with the unlimited deal: they’re less incomprehensible than the other options.) But slowly, consumers (at least some) are getting hip to what’s going on. They’re learning about the fees game, about what wireless services they need, and what they’re never going to use. They’re learning about what’s worth paying for, and what’s not.
This means that hopefully, sometime in the near future, there will be a genuine price war that honestly competes to deliver what customers want at the best price possible.
When? Well, the sun is setting on the exclusivity angle that wireless providers have been using for so long. Verizon is expected to introduce its version of the iPhone this summer, giving customers the choice to have an iPhone without getting into bed with AT&T. Google’s Nexus One is being sold with the option of no contract, meaning that wireless providers will have to compete for customers, rather than being guaranteed them per exclusive deals with the manufacturers.
Ah, genuine competition. Wouldn’t that be nice?