Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
Three events have impacted the balance of postpaid power thus far in 2013: 1) Walmart’s introduction of the iPhone 5 (3G only) through Tracfone/Verizon Wireless. We have spent some time on the million net add effect on Verizon Wireless’ Q1 and 2013 results as it has significantly impacted the landscape; 2) Verizon Wireless’ re-introduction of a $35 retail prepaid feature phone offering in April 2013 and their recent announcement that they were increasing data speeds for their $60 and $70 smartphone monthly plans (2 gigabytes of 3G data, up from 500 megabytes; and 4 GB, up from 2 GB); and 3) T-Mobile US’ introduction of their “Simple Choice/Less Money Down” plans, especially the $100 (now $150) iPhone 5 plan.
Pricing for each of these events points in one direction – down. While there has been significant growth in smartphone adoption and shared data plans for families and small businesses, the unmistakable trends are lower cost devices, more replacement/refurbished devices and fewer contracts. The postpaid subscriber is in the crosshairs.
Research firm NPD backs up this theme with their study released last Wednesday. Here’s the first quarter year-over-year change in prepaid smartphone additions as a percentage of the total:
That is a substantial change in mix with comparable (non) events in each quarter (no iPhone or Galaxy S III launches to skew the data). Interestingly enough, it is a full 10 percentage points (1,000 b.p.) higher than Q4 2012, which was a big quarter for the iPhone 5.
NPD goes on to say:
“In a quarter without a major product launch from either of the two market leaders, consumers refocused their attention away from the postpaid wars and toward finding the best value for their dollar,” said Stephen Baker, VP of industry analysis at NPD. “Sales of prepaid smartphones doubled from the previous year, continuing a string of more than 12 quarters of triple-digit sales increases.”
We all know how a triple-digit percentage increase on a small number can still result in an still small number (especially compared to postpaid), but 12 consecutive quarters of year-over-year sales increases cannot be ignored.
This is what keeps Sprint Nextel, Verizon Wireless and AT&T Mobility up at night – customer re-focus away from postpaid and on to no-contract. They are asking “Can I get a good enough phone with good enough data to satisfy my needs from one of the top carriers?” It’s a continual tug of war between the allure of smarter devices and bargains for the formerly smartest devices.
AT&T Mobility and Verizon Wireless have joined Sprint Nextel and T-Mobile US in answering this question. The matrix below compares their plans:
There are a lot of nuances between plans, but let’s look at the first two columns – Verizon Wireless and AT&T Mobility. Both of the major carriers have competitive rate plans with sub-$100 devices (the Galaxy Amp is an Android 4.1.2 (Jelly Bean) device for $99; the Samsung Illusion is an Android 2.3 (Gingerbread) device for $99). Both allow customers to bring their own device (with restrictions and potential one-time costs). Both offer CDMA2000 1x EV-DO Revision A and HSPA speeds (neither offers LTE) with generous data buckets for a mobile-dependent segment. Neither plan offers the option of extending into a family plan.
This “first line” world is going to become intensely competitive over the next two years, particularly in areas where up to four networks are competing for the customer. By the end of the year, some network plans (Sprint Nextel, T-Mobile US) will include LTE speeds and devices. Also, by the end of 2013, a wave of GSM and CDMA iPhone 4S devices will hit the refurbished market (85% of these have been encased in silicone or heavy duty plastic since they were first used). They will be more “like new” than any other refurbished Apple device. T-Mobile US is already adding 100,000 refurbished (AT&T Mobility) iPhones to its network each month.
When the average monthly cost of an unlimited plan (including the smartphone purchase) falls below a day’s wage (at minimum wage = $58), the “family” nature of postpaid plans begins to unravel. This could happen at a $40 unlimited plan (with LTE as the predominant network, a 2 GB plan is possible) and a $100 device.
T-Mobile US is getting very close to this level with their two-line cost of $100 and $0 down/$14 per month new smartphone plans ($50 + $14 = $64 per line). In fact, for three or more devices on a family plan, the costs are below $58 per line. There are a lot of caveats to these plans (e.g., the $14 gets paid over 24 months which equates to a $336 commitment per device; T-Mobile US’ network is not as large as AT&T Mobility’s; roaming and other charges are not included), but the point is clear: For the approximately 200 million postpaid devices covered by four networks, the competition is about to get intense.
Where does customer loyalty reside? Is it with Apple/Samsung or Verizon Wireless? Does 4 megabits per second satisfy the needs of most smartphone consumers? How big an impact will refurbished models have on the pricing and availability of new devices? How does the availability of 100,000 cable Wi-Fi hotspot devices affect the 2 GB usage cap? Does any of this matter when the user of the device is a teen or child?
The wireless industry was not asking these questions two years ago – phones were too expensive and showed signs of wear/tear, and we were thinking about the effect of the merged AT&T Mobility/T-Mobile USA on the industry. Two years from now, customers, not their contracts, will dictate their network provider choice. That trend is causing many senior executives to pause and reassess their postpaid strategies, creating an extra wrinkle of worry on many management brows.
Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at [email protected] and you can follow him on Twitter @pattersonadvice.
