A new pricing study released by Bear, Stearns & Co. Inc. indicates U.S. mobile phone carriers battled
it out for high-end wireless customers in 1998.
Prices did not fall as quickly in 1998 as they did the previous year,
indicated David Freedman, wireless analyst with Bear Stearns in New York. “For plans less than 400 minutes per
month, there was almost no change in the affected price per minute from 1997 to 1998,” he said.
Above 400
minutes, however, personal communications services carriers decreased rates by about 10 percent, while cellular
operators-which found they needed to make a competitive strike as PCS carriers improved their footprints-lowered
tariffs by approximately 20 percent at all levels of usage, but only 10 percent to 15 percent for plans below 400
minutes. And for plans above 600 minutes per month, the survey detected a decrease in price of more than 20
percent.
“We believe this shift reflects the fierce competition for high-end customers,” said Freedman.
“The 20-percent figure probably understates the move because our survey does not incorporate roaming
charges.”
The survey included 41 cities nationwide and studied plans from cellular and PCS carriers as well as
enhanced specialized mobile radio provider Nextel Communications Inc.
Freedman concluded that demand for
wireless service is highly elastic at new pricing levels. This is evidenced by cellular operators’ slower decreases in
average revenue per unit compared with price declines.
“Looking at cumulative price changes from 1996
when PCS first began, through 1998, median prices have decreased about 50 percent. Yet over the same time, ARPU
declined more on the order of 15 percent,” said Freedman. “That demonstrates significant elasticity of
demand.”
Freedman attributes the decline in cellular operators’ average revenue per unit to a natural decay as
the industry penetrates more casual users, high-end cellular users migrating to PCS operators and the expansion of
home rate areas that have cut prices.
Other pricing trends Bear Stearns found:
Some carriers have stopped
offering the first incoming minute for free. Some digital cellular operators, notably AT&T Wireless Services Inc. and
BellSouth Mobility Inc., have stopped providing this feature even though it had been offered in 1997, said Freedman.
He said many carriers note that the larger number of minutes bundled with the access fee makes this feature less
important.
Digital cellular is cheaper than analog service. A carrier can offer all customers double the minutes
consumed previously on analog networks and still have enough capacity to increase its customer base twofold, said
Freedman. Digital service was not cheaper 100 percent of the time because some carriers in smaller markets priced
digital service and analog service the same.
The number of competitors in a market doesn’t determine the price
level. Pricing for 400 minutes did not change significantly from three operators to seven operators in a given market,
said Freedman. Above 400 minutes, the price per minute declines faster with seven competitors.
