With plunging prices and new technologies free cell phone service is inevitable by 2020
The New Sticker Shock: Plunging Cellphone Bills
The New Sticker Shock: Plunging Cellphone Bills
By Ryan Knutson
Customers are used to cellphone bill shock, but not like this.
The cost of U.S. cellular service is rapidly plunging, reversing years of increases that have squeezed consumers’ budgets and generated huge profits for wireless companies.
Americans are using their smartphones more than ever to stream videos, surf the web and browse Facebook. But telecommunications companies are losing their power to raise prices for using their networks, in part because the U.S. cellphone market is nearing saturation. That has kicked off a vicious price war among the four national wireless carriers.
The consumer-price index for wireless phone service, an indicator of current offers from cellphone service providers, dropped 12.5% in May from a year ago, according to the Labor Department. The index earlier fell 13% in April, the largest decline in the history of the category, prompting Federal Reserve Chairwoman Janet Yellen to say earlier this month it was a factor in the country’s low inflation.
Beyond the consumer impact, the rapid collapse in the industry’s pricing power will ripple through its profit margins, federal regulations and antitrust law.
T-Mobile US Inc. and Sprint Corp., the third and fourth largest carriers, recently rekindled talks about a merger, according to people familiar with the matter. The two previously discussed combining in 2014 but backed down in the face of regulatory opposition.
The rout could continue when the many consumers who haven’t felt the effects of price drops, unaware they can lower their monthly bills, call their carriers to demand better deals.
Selina Sosa, who runs a nonprofit near Dallas, cut her monthly bill by about a third in less than six months. Last December, she switched carriers from AT&T Inc. to Verizon Communications Inc., reducing her payment for three phones from $330 to $279.
In April, Ms. Sosa called Verizon with a billing question and an agent offered to switch her into an unlimited-data plan and lower her monthly bill by another $57. “I didn’t even ask to reduce my payment,” she said, adding she was relieved to save the extra cash.
Six years ago, the number of active cellphones surpassed the U.S. population. About 80% of Americans currently own a smartphone, according to CTIA, an industry trade group. Many have multiple devices. Consumers are also keeping their smartphones for longer periods, which means fewer customers are up for grabs. Offers from wireless providers are becoming increasingly extreme. Sprint this month launched a short-term promotion to give away a free year of wireless service to new customers who supply their own mobile phones. The move comes months before Apple Inc. is expected to introduce its newest iPhone, which is when carriers typically roll out discounts.
The competition grew so intense during the first three months of this year that Verizon, the largest national carrier, suffered its first-ever quarterly subscriber loss. AT&T Inc. and Sprint also lost customers, and the industry’s total revenue growth slowed to 1% from a year ago, its lowest-ever rate, according to research from investment bank UBS. The quarter’s big winner was T-Mobile, which has been offering plans with favorable features.
A major reason for the steep decline in the wireless consumer-price index is companies’ return to unlimited-data plans. Back in 2010 and 2011, AT&T and Verizon ended their all-you-can-eat plans for smartphone customers and imposed monthly caps on usage. Executives for years said unlimited plans made little economic sense.
In February, Verizon brought back unlimited plans to counter a wave of customer defections to T-Mobile and Sprint, which had both rolled out aggressive unlimited offers. Days later, AT&T responded with a new unlimited plan of its own. With the new plans, making calls and texting are essentially free. Expensive overage fees that carriers impose when users exceed their monthly usage limit are also going away.
Verizon now charges $80 a month for an unlimited talk, text and data plan for a single line. Sprint charges $50 for a similar plan in the first year. In 2011, an unlimited Verizon plan cost $120 and one from Sprint cost $110.
Verizon Chief Executive Lowell McAdam said at a conference in May that adopters of its current unlimited plan are mostly people who used to have pricier subscriptions. He also predicts many customers with lower-price, capped-data plans will soon start paying more for unlimited service to avoid having to keep track of their monthly data usage.