A Bit on Why People Don't Answer the Call to Cell Phone Savings

One of the costly monthly expenses for most households in America is their cellular phone bill.  The CTIA Wireless Association estimates that average cell phone bill was $47 in 2012 but many individuals pay double that amount.  The CTIA figures do not factor in the costs of handsets or choices for “reasonable” plans

Smart phone consumers comprise 46% of the market (including 66% of youths aged 21-30).    The CTIA figures do not factor in the costs of handsets or choices for “reasonable” plans.  So there may be a low cost plan, but if one is required to carry a data package, monthly costs precipitously increase.

Another reality is that the most of the major American cellular carriers push subsidized phones with strict two year agreements.  Few cellular consumers consider the overall costs incurred with such a subsidized cell phone contract. 

Tero Kuittinen, an independent market analyst from Alekstra, notes: "That psychology has worked for hundreds of years, and it’s still working.”   Another factor to consider is the attachment that many people feel toward their cellular purchases. [***]  It seems akin to the mentality which drives new car purchases that customers will overspend to get that “new car smell” for a durable that loses 20% immediately after purchase. 

T-Mobile took the lead among cell providers in weaning prospective customers from the subsidized cell phone model with their Simple Choice plan.  But an  alternate model which T-Mobile innovated but had more success in competitors emulating is the “Next, Edge, Jump” and “OneUp”.  

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Yet, cell phone services are not fungible.  Aside from the handset cost, choice of carriers are impacted by coverage.  An inexpensive plan is worthless if one does not get range in one’s preferred calling area.  Verizon Wireless has the best coverage but people pay a premium for the extensive coverage.  But most customers may not need such extensive range.

Cost conscious consumers should know that they can cut their cellular costs in half (or more), by using Mobile Virtual Network Operators (MVNOs), pre-paid cell plans and fremium cell providers like FreedomPop. But the reality is that according to Ovum, only 23% of cellular customer have opted for such frugal mobile phone service. 

 As MNVOs and the ilk do not have the deep pockets for advertising, they have a dubious reputation.  

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Usually, second tier cellular carriers offer less current handsets.  Even though these cell phones may only have been on the market for six months, finicky consumers turn their noses at these out of data handsets. 

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In another phase of its Un-carrier campaign, T-Mobile tried to  wreck the international roaming racket. T-Mobile stopped charging more for international text for Simple Choice customers when sending to 100+ countries.  Calls to Simple Global countries aside from the US are at $0.20 a minute.  Most importantly, there is no outrageous international data roaming charges at standard speeds.   However  there are some caveats to this International Roaming largesse.

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As America enters harder economic times, more consumers may try to beat the high cost of living by answering the call to cheaper cellular services.

SEE MORE at DCBarroco.com 

A Bit On Cell Phone Upgrades-- Next, Edge, Jump

American cellular phone companies originally structured their service to entice new customers with heavily subsidized handsets in exchange for a nearly iron clad two year contract.  If a consumer wanted to ditch their contract early, they faced an Early Termination Fee (EFT) of between $175 to $350.  This EFT sought to recover losses from the subsidized handsets, but also acted as an incentive to stop churning customers.  This practice did not always settle well with consumers stuck with lemon phones or if cellular coverage was wanting so a consumer wanted to stop service

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Cellular service providers got the message that both Uncle Sam and consumers were unhappy, so they figured out other ways to cut their losses.  Recently, T-Mobile tried to co-opt a European approach by not offering subsidized handsets with supposedly lower monthly plan rates.  Not being locked into a contract offers the illusion of freedom, but full freight for a smart phone can be $600 up-front and consumers could walk away with their GSM phones and go to ATT or a Mobile Virtual Network Operator (MVNO) such as Wal-Mart’s Straight Talk to get lower rates.

While many cellular consumers like the notion of not being bound by an iron clad contract, what they really want is to feed their fetish for a constantly current cell phone.  Whether a consumer is locked into a two year contract or paying the full sticker price for a smart phone, there are still ties to a handset which makes a consumer chary to switch. 

Several of the major cellular carriers are accommodating the consumer desire for constantly current cell phones with new programs.  

T-Mobile’s Jump program is a no-contract cellphone customers who pay an extra $10 a month for insurance and Jump plan participation.  T-Mobile typically runs a credit check on prospective new customers in order to determine how much of a down-payment is required for a phone purchase in 20 monthly installments on top of your phone plan (although T-Mobile stresses that everyone eventually pays the same price for the handset). But if you are a Jump plan participant, after six months a consumer can trade in an old handset and purchase another on a 20 month installments, but the consumer is no longer responsible for payments on the old handset. Of course, if a customer wants to keep the handset, he must pay the remainder of the balance of the installments.  

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AT and T Next is a way for an AT and T customer to get a new phone every year. When a customer chooses AT and T Next, the price of their technology is broken into 20 monthly installments (with no finance charges).  At the time of purchase, the customer does not have to make a down-payment but must pay the full sales tax.  After 12 monthly payments, a customer can trade in his device and receive a new one, and no further payments are required on the old device and the customer starts over on a new installment plan with no activation or upgrade fee.  After 20 months, a customer does not need to make more monthly payments and the superannuated telephonic toy is yours to keep. 

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Now Verizon seeks to cut into this anxious upgrade consumer segment with Verizon Edge on August 25th 2013.  The Verizon Early Upgrade Program entails a consumer purchasing a phone on a month to month plan and the full retail price is broken up into 24 installments.  When purchasing the phone, the consumer makes the first equipment payment and presumably pays sales tax on the full retail price of the device. 

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These early upgrade programs are a good compromise which allows service providers to re-coop costs on handsets without EFTs while effectively locking consumers into relationships with cell phone providers without an iron clad handshake.  Consumers who opt into early upgrade programs can get the latest and greatest (at that moment) technology and not be stuck waiting so long for an upgrade. And these plans did not require government mandates or Uncle Sam engineering the marketplace. 

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Personally, I am more worried about having favorable cell phone plan rates and coverage rather than periodically having a shiny new telephony toy.  However, I appreciate that I am in the minority in the marketplace.  As for those who have a phone fetish to always have the latest and greatest, my tongue in cheek advice is : “Next, Edge, Jump”!

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Some Shifting Spectrums in the US Cellular Industry

Although the radio waves are not physically realigning themselves, cellular companies have been to stead themselves for the future.

T-Mobile, which escaped from an AT andT acquisition by the FCC blocking the merger, grew by acquiring MetroPCS.  Although the “T-Metro” merger added 9 million subscribers to the  Deutsches Telekom holding company’s 34 million base, it remains the  fourth largest US cellular company.  But size isn’t everything.

T-Mobile did not acquire MetroPCS just to grow. T-Mobile wanted the MetroPCS spectrum.  


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The 78%  acquisition of Sprint by Japanese Softbank for $21.6 billion  was delayed until this June 2013 to allow  Sprint completed its acquisition of the remaining 50% of Clearwire.  There was a clear synergy when Sprint’s 4G service was premised on Wimax like Clearwire.  But Sprint clearly wanted Clearwire’s spectrum.  Clearwire’s bankruptcy would have forced Clearwire to auction its large spectrum holdings and left its partner Sprint with worthless holdings.  

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One might wonder why AT and T  was willing to pay $1.2 billion to acquire Leap Wireless subsidiary  Cricket Wireless?  AT and T  had just launched IO pre-paid phone subsidiary so it did not need another Mobile Virtual Network Operator (MVNO).  Cricket only added 5 million subscribers to second largest US carrier’s 96 million subscriber base.  So why did AT and T  pay nearly a 90% premium for Leap Wireless stock?  Clearly, the answer is spectrum.  



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Cellular consumer activists, such as Harold Feld of Public Knowledge, condemned the proposed AT and T acquisition of Cricket Wireless, claiming that AT and T already has enough wireless capacity and thinks that low-income and poor credit customers would be adversely effected.  Perhaps it should not be surprising in the class envy age of Obama when community organizers dictate when companies "have enough" and should pay "their fair share."  But such animus is disconnected from reality.

Carriers seek more spectrum to keep up with customer demands.  The cellular industry has shifted from stingily selling voice minutes to essentially making them ubiquitous, but carriers make their money on data.  Verizon Wireless hopes to shift all of its voice calls to VoLTE by the end of 2014 as it is a more efficient conveyance of voice calls and then use the freed up spectrum to meet data needs.

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Even as the cellular industry figuratively shifts towards data spectrum, most consumers just care about getting a new handset and give little consideration to the details of a major household expense--their cellular bill.

SEE MORE at DCBarroco.com