A wireless price war may be brewing now that all the major carriers have begun to offer unlimited voice plans. But in the future, carriers will rely on the Internet, mobile TV, and even advertising to help stave off low margins.
Verizon kicked things off by announcing an unlimited, all-you-can-chat plan for $99 per month, with AT&T quickly following suit. T-Mobile upped the ante slightly by offering unlimited talk plus unlimited text and picture messaging, before Sprint launched its own $99 plan that includes voice and messaging, yes, but also unlimited data and mobile TV.
These plans are all currently aimed at power talkers, with cheaper plans available -- and they still turn good margins.
"Does this plan change the revenue future of the industry? No, it doesn't," said Tom Nolle, president of Voorhees, N.J.-based CIMI Corp. "Does what this plan indicates change the revenue future? Yes, and I think it says we're going to move to, in time, what is essentially an unlimited calling wireless plan [across the board]."
Nolle said voice-related profits have been dropping and unlimited voice was the inevitable move, but rather than driving a price war, as some fear, the announcements are an acknowledgement that one has been going on all along.
Don't say goodbye to the days of minute pinching quite yet, though -- the current model still has legs. All of the major carriers' new plans are still a good deal more expensive than what regular users want to pay, leaving the unlimited option aimed at power users and a small but growing segment who have been ditching their landlines entirely.
"This is just one price option," said Brenda Raney, spokesperson for Verizon Wireless, adding that Verizon still offers a robust portfolio of price options. "It's not for everyone," she said. Many people will stick with the capped minute plans for now.
Nolle suggested that the near-simultaneous carrier announcements do signal a fundamental shift. They are acknowledging that wireless voice, only slightly behind its wired counterpart, is quickly becoming commoditized, and in the future money must come from elsewhere. The exact mix of services that will be profitable is still very much up in the air, however, even as the current money maker loses its luster.
"That's what has a lot of people spooked," Nolle said. "Verizon could say, 'We're not going to [offer unlimited calling],' but then somebody else would." By making the first move, they at least retain a leadership advantage. Like it or not, he said, voice commoditization is the future trend, and these unlimited rates will gradually get cheaper.
This doesn't mean that wireless providers will soon become "dumb pipes," a worst-case industry scenario that would give providers little to compete on other than price, leaving each with only slim margins. Each has been experimenting with a plethora of services, such as Internet and mobile TV, for which they can charge extra.
These services still earn a hefty premium, sometimes doubling user revenue. But there are also more traditional differentiators that might be able to fetch a higher price.
"We've always competed on the quality of our service," Raney said. "We're not the low-price carrier, but that's not our goal." Verizon has been touting its robust network through aggressive advertising and offers to let local media ride along with network tests.
Aside from add-on services, Fixed Mobile Convergence (FMC) and advertising are both promising avenues for revenue generation, Nolle said, though both are still being tested extensively by various carriers, with few major rollouts.
The forecast down the road
All of these solutions are only temporary, however. What makes money today could quite well be commoditized tomorrow, and so on.
"There are no good long-term wireless strategies," Nolle said. But lowering prices would be ruinous to all involved. It would slash revenue per user, he explained, while failing to bring in new customers in an almost saturated market. Instead, providers must innovate and earn – while they can.
"What all these guys are essentially realizing is that wireless and wireline are circling the same drain," he said. "Wireless just has further to go."