Price plan is no Game Winner

Verizon Wireless introduced an unlimited calling plan for $99.99 a month on last week. Verizon Wireless is the first major carrier to make an “unlimited” plan available nationwide with no domestic roaming or long-distance fees. At that time, it must have seemed like a good plan to upsell subscribers to “move up” to the unlimited level, including possibly getting new customers from the other cellular carriers, and to create some extra ‘buzz’.

However, not even a mere five hours had gone by when AT&T announced its own unlimited plan. Three hours later, T-Mobile announced its own unlimited $99.99 a month plan, which even included unlimited text and picture messaging, which otherwise costs an extra $14.99 per month when added to other T-Mobile plans. In the end, only Sprint Nextel hadn’t announced a matching plan, and the stock price of all U.S. mobile carriers had taken a dip.

This is far from a historic day in Wireless. This is merely putting a cap on the high end charge. Given that wireless carriers have a monthly ARPU (Average Revenue Per User) of around $50, it is clear that only a small percentage of customers subscribe to these high-end plans. Of course, one could expect more customers to move to the new unlimited plan, but even that would still be a small number. However, for those high end users, this will increase the rate at which they cut the cord and use cellular exclusively for their voice communication needs.

So why did the stock prices of dip so much?

Curiously missing from this picture is Sprint Nextel. Sprint has been trialling an unlimited plan for $119.99 a month (includes unlimited Web use, e-mail and messaging) in Philadelphia, Minneapolis, Tampa, and parts of Northern California and Western Nevada since May 2007. Sprint is looking at how well the offer is doing in the trial areas, and unfortunately for Sprint, this ‘looking’ has been mooted by the other 3 rivals. Given the recent customer losses and with no apparent advantage over AT&T and Verizon Wireless, Sprint will likely have to offer a cheaper plan, to stem the defection of customers. The dip in the stock price probably implies that Sprint will undercut very aggressively and that AT&T and Verizon will eventually be forced to respond. Rumors are that Sprint will undercut its rivals with a flat-rate calling plans that is as low as $60 a month. If AT&T or Verizon are forced to match a $60 to $80 plan, it can significantly cut industry-wide revenues and potentially sets a dangerous precedent towards downward spiraling price plans.

One way or the other, the actions by AT&T and T-Mobile show that nifty price plans no longer provide an advantage to any carrier. So why was this done in the first place?

Perhaps Verizon Wireless wanted to pre-empt a price cut by Sprint. Or perhaps it was a plan to kill-off Sprint Nextel. After all, Sprint is struggling and what better time to attack it than while its down!!! But now it may find itself in a downward spiraling pricing game that the industry is ill-designed to match. Nonetheless, if anyone is able to withstand price-cuts, it must be Verizon Wireless, because it has the higher margins that both Sprint Nextel and AT&T.