As monthly wireless service plans grow, some wonder if the sky's the limit
- 18 October, 2012 20:03
Verizon Wireless' Share Everything plan, introduced in June, has helped boost the average Verizon wireless phone bill by 6.5% to $145 a month.
That bill increase, reported in third-quarter results on Thursday, helped Verizon Wireless to reach record profitability of 32% for the quarter. Total revenues were $19 billion, up 7% from the third quarter of 2011.
While investors may cheer, some average customers are not. They, like some analysts, wonder if the sky's the limit on monthly service fees.
"It's totally ridiculous that my family pays $150 a month for wireless," said one Verizon customer with three cellphones on his account who contacted Computerworld and asked not to be named. An insurance executive, he said wireless carrier service fees need to be regulated the same way states regulate insurance rates.
While some gripe about wireless service costs, the quarterly numbers show that new smartphones and Verizon's faster LTE network, now in 419 cities, are popular. Smartphones and tablets over wireless allow customers can do things that a few years ago were only possible on a stationary computer or multiple devices. Carriers and industry supporters argue these new capabilities help justify the higher monthly cost.
Verizon's Share Everything plan initially drew public criticism, but Verizon said the plan gives families and workgroups the flexibility to put up to 10 smartphones and other devices on a single account to share data and receive free voice and text. The plan requires the purchase of a monthly allocation of data, in 2 GB increments, on top of a monthly fee for each device.
AT&T announced its version of a data sharing plan as well in August.
Before the Share Everything plan was launched, the most cost-conscious customers could buy a $70 a month smartphone plan. "Verizon slammed the door on these people and hiked the minimum plan price to $90," said Tero Kuittinen, an analyst at Alekstra Oy, told the Bloomberg news service.
Even so, the overall pricing environment in the wireless industry has been steady, and no single carrier has been irrational with pricing, added Colby Synesael, an analyst at Cowen & Co.
Growth rates on wireless services can't last forever, he warned. "There's a finite amount of consumer discretionary money," Synesael said.
Analysts wouldn't suggest a maximum price that average subscribers would be willing to pay each month, but they said a ceiling exists.
"Is there an upper limit? Yes, but it's not equal for everyone, and right now many consumers have grown accustomed to high connectivity costs and are willing to pay for it," said Jack Gold, an analyst at J. Gold Associates.
Regulators and others see the biggest controlling factor in service pricing coming from competition, such as the unlimited plans offered by Sprint and T-Mobile USA. Both are pursuing separate mergers: Sprint with Japan's Softbank and T-Mobile with Metro PCS.
Sprint executives said recently at the MobileCon conference that they have no plans to stop offering unlimited data plans.
"A service pricing war could be in play if Sprint gets the backing they need from Softbank to extend their network or T-Mobile really beefs up its coverage and offerings," Gold added. "For the most part, consumers are only looking at two key wireless carriers for data -- Verizon and AT&T -- and neither have any real incentive to lower prices right now. There's just not that much competition."
AT&T and Verizon together have about 75% of the market for customers on two-year service contracts in the U.S., analysts said.
The monthly Verizon Wireless bill increase of 6.5% is about double what analysts had expected. Verizon also reported 90.4 million postpaid (two-year contract) device connections, and increase of 1.5 million net connections over a year earlier, and well above analyst projections. Each account had an average of 2.6 device connections per account, up 4% over last year, Verizon said. All types of wireless device connections on various service plans at Verizon Wireless total 95.9 million.
LTE networks are clearly popular with Verizon customers, who purchased 4.5 million LTE devices in the third quarter, including the popular iPhone 5 and Samsung Galaxy S III. Verizon turned on 3.1 million iPhones in the quarter, and 21% (650,000) were iPhone 5s with LTE.
Smartphones now make up 53% of Verizon's postpaid customer base, up from 50% at the end of the second quarter. Smartphones drive up average monthly service costs just because of the way they are used for accessing data, Gold said.
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is email@example.com.
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