Four of the major mobile operators in the US - AT&T Mobility, Sprint, T-Mobile, and Verizon Wireless - have announced unlimited voice pricing plans for $100 per month. What will that achieve and what are the potential dangers?
Even though the US mobile market is nearing saturation, this move was probably not expected to provide any competitive differentiation; there is nothing to keep rivals from matching the offer. In fact, AT&T and Verizon announced their unlimited voice plans on the same day.
There is no question that, if the plan becomes popular, that monthly spending will change. That magic metric, average revenue per user (ARPU), is watched closely by Wall Street. An increase in ARPU is rewarded by the Street. Declining ARPUs are punished. Here's how In-Stat evaluated that risk based on data collected over the years in extensive customer surveys.

NET EFFECT: 16% ARPU INCREASE

Even though subscribers who are the heaviest spenders on voice services would immediately cut their bills by adopting the flat-rate plan, In-Stat believes that there is a much larger upside for the operators.
Subscribers now paying more than $100 per month for voice services alone (which requires $20 or more per month in overage charges) will immediately move to the $100 unlimited plan. That group represents about 8% of cellular customers, according to last summer's Consumer Mobility Survey.
There is, however, a much larger group of customers that are approaching the $100 monthly mark. Those users, who spend between $75 and $100 each month, might be tempted to increase their spending to that $100 figure. This “almost $100” group represents almost one third of mobile subscribers. Bumping their monthly spending to $100 would boost the operator's total revenues and voice ARPU considerably. In-Stat believes that the total increase to voice revenues would be as much as 15%, even after taking into account the number of high-spenders who would no longer be paying monthly overage charges.
The net effect could be an ARPU increase of as much as $11 if this large group of consumers embraces the $100 flat rate pricing plan.

LONG TERM - A RACE TO THE BOTTOM?

Those of us watching the long-distance market implode in the late 1980s saw competitors racing to the bottom of the price list, dropping per-minute rates from the mid-twenty cent range to just a few pennies at which point many of the companies were no longer able to compete and were forced to exit the market.
In-Stat does not believe that flat-rate voice pricing will cause a race to the bottom for mobile operators in the US for several reasons:

Additional services—operators can always add premium services to the mix rather than reducing the price. For example, Sprint includes messaging and premium data services in its $100 package; T-Mobile includes unlimited text messaging but no data.
It's not really a price cut—fewer than 10% of mobile subscribers would be reducing their monthly spending by selecting a $100 plan.
Multiple revenue streams—while the $100 plan may represent the peak of voice pricing, the US operators, like operators around the world, are seeing revenue growth from premium services and messaging.

CONCLUSION: NO HARM, NO FOUL

While it might appear that the mobile operators in the US that have adopted unlimited pricing for voice services could be headed down the wrong path, in reality, this is likely more a matter of enticing customers to spend more money - perhaps much more money - for something that offers only limited increases in utility. That's a good thing for the operators, possibly providing a bump in revenue and in ARPU that should phase in over the coming two years as current rate plans expire.
Consumers, if they perceive an improved value, are likely to adopt.

THE PLANS

AT&T Wireless
Unlimited voice: $100
Unlimited voice and messaging: $120
Unlimited voice, messaging, web, video and email: $135

Verizon Wireless
Unlimited voice: $100
Unlimited voice and messaging: $120
Unlimited voice, messaging, VCAST, Navigation and Email: $140

Sprint
Unlimited voice, messaging, push-to-talk: $90
Unlimited voice, messaging, navigation, push-to-talk, music and video: $100
T-Mobile
Unlimited voice and messaging: $100


David Chamberlain, Principal Analyst
david.chamberlain@reedbusiness.com