The wireless industry has undergone three major revolutions over the last two decades: voice, messaging, and data. As the U.S. wireless industry was delivering these three technologies to American consumers, wireless carriers competed relentlessly against each other, resulting in numerous consumer benefits including lower prices for the services. The story of how the industry brought these benefits to Americans is poorly documented. The lack of care to fully document the wireless industry's success story has resulted in an industry that is more blamed than lauded for its efforts and achievements.
While it is true that the U.S. wireless industry has provided more business metrics to the public via press releases and financial disclosures than any other industry, the data it discloses has not meaningfully changed since the late 80s and early 90s. When the industry got underway, it was awash in red ink and was focused primarily on providing wireless voice connectivity. In an effort to show investors success in the face of billions of dollars of losses every quarter, the industry released subscriber growth data, average revenue per subscriber figures, and minutes of use information as indicia that the companies were growing and were providing a service that American consumers wanted and valued. As the industry began to offer services and capabilities beyond wireless voice, however, it did not simultaneously update the sorts of metrics it provided to the public or to regulators to indicate the tremendous value wireless consumers continued to receive. We have now reached milestones that were unthinkable 20 years ago: there are now as many mobile connections as there are Americans. Due to the competition between U.S. wireless operators, the effective price per voice minute has declined to about four cents per minute. But today, that is only half of the story. The real story is the decline in overall prices.
All data points for the respective 4th quarter of each year.
Per the chart above, it is clear that when the industry maxed out its ability to compete on per minute voice rates, it resorted to lowering top line prices. In the last five years, the voice revenue per customer--what an American pays every month for voice service--fell from $47.46 per month to $33.02 per month, a 30 percent decline. At the same time, Americans increased their talk time from 902 minute per month to 990 minutes per month.
Information about the impact of the next two revolutions, messaging and data, has been made much less clear. One could think wireless operators want to hide the successes and benefits they have brought. Please excuse my sarcasm, but when you read the praises that smartphones are receiving and the scorn that is heaped upon the carriers that power these devices, the strategy seems to be working perfectly.
So what is happening in the world of text messaging and data connectivity when it comes to prices paid by consumers? The Nielsen Company, which is tracking this information, has kindly made industry-wide data available to Recon Analytics for analysis and publication.
First data point is 1st Quarter 2005, all subsequent data points are for the 4th Quarter each year.
In 2005, America's infatuation with messaging began and the industry started to seriously compete in the next wireless revolution. According to Nielsen's Customer Value Metrics, the number of messages that the average American sends or receives per month increased from 25 in Q1 2005 to 728 in Q4 2010, that is a 29-fold increase. At the same time, the effective price per message has declined from 5.7 cents to 0.9 cents during the same time period. Consumers are taking advantage of the messaging bundles that are available in mind-blowing numbers, as the average U.S. teenager sends more than 100 messages per day. While we have seen the largest decline in the effective price per message between 2005 and 2008 when large bundles were introduced, price continues to decline. From Q4 2008 to Q4 2010, the effective price of a mobile text message has declined by about 33 percent from 1.4 cents to 0.9 cents.
Beginning in 2008, the wireless revolution came to data connectivity. Through the widespread introduction of smartphones, data consumption became easier, and Americans embraced the service at record levels. History is starting to repeat itself. As consumption increases, US wireless operators have responded by competing for customers on price, both by offering more data for the same money, or by lowering prices for fixed amounts of data.
Quarterly data is provided.
As this next revolutionary wave in wireless innovation unfolds, the effective price per megabyte of data has declined from 47 cents per megabyte in Q3 2008 to about 5 cents per megabyte in Q4 2010--roughly an 89 percent decrease. Today the effective price of a megabyte of data is the same as a voice minute, something that was unthinkable ten, or even five, years ago. With the consumption of data continuing to explode due to the tremendous offerings from smartphones, and the investments in 4G networks and backhaul, the price per megabyte of data will continue to decline.
This brings me back to the beginning of my research note. Why doesn't the wireless industry better use this kind of data to explain the services it provides and the value American consumers are realizing, just as it did with Minutes of Use, Average Revenue per User, and Churn metrics? Failing to provide the industry metrics that capture what's actually happening in the marketplace disserves American wireless consumers and Washington policymakers. If regulators are ill informed or have outdated information about the wireless consumer experience, they tend to adopt regulations that drive up the cost of doing business- costs that get passed along to consumers. The wireless industry would have a much easier time in Washington if it would make more data available about its performance--and the consumer would be the biggest winner.
A special thank you goes to Don Kellogg from the Nielsen Company for helping to put together the data.
Roger Entner is the Founder and Analyst at Recon Analytics. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications.