Flat-rate Revolution

Flat-rate Revolution

When it comes to world of complicated wireless rate plans, simplicity is suddenly all the rage. On Monday three of the Tier 1 wireless operators (Verizon, T-Mobile USA and AT&T) debuted $100 per month unlimited voice rate plans. Overnight, it appears operators became willing to cannibalize their customers that are on higher-priced rate plans of $150 and $200 per month in order to offer the allure of unlimited calling for $100 per month.

The majority of consumers are on wireless rate plans in the $50-$70 per month range so it seems as if the $100 per month plans will likely be most appealing to business users who want predictable monthly cell phone bills. Alltel Chief Marketing Officer Frank O'Mara says that Alltel believes the "sweet spot" for wireless voice is around $50 per month. The company, which offers unlimited calling to certain phone numbers within a subscribers "circle" found that when it launched its MyCircle plan in 2006 offering unlimited calling to 10 numbers for $59, the plan attracted existing customers but not a lot of new customers. However, when the company offered a second MyCircle calling plan for $49 and unlimited calling to five numbers, it saw a lot more traction from new customers.

For now O'Mara says that Alltel is going to stick with its MyCircle rate plans and not jump on the $100 per month unlimited calling bandwagon.

However, the real loose cannon in this mix is Sprint Nextel. The rumor mill has been churning that Sprint may join the unlimited rate plan game but with a less-expensive offering at $60 per month. If that should happen, it will likely trigger a price war among the operators. In addition, I think it will have a huge impact on smaller operators such as MetroPCS and Leap Wireless, which have built their entire business propositions around unlimited calling plans in the $35-$60 per month range. Leap Wireless' spokesman Greg Lund says that unlimited calling plans are the right value proposition for its customer. So far the company isn't worried about competition from the Tier 1 operators with their $100 per month unlimited rate plans. "We haven't seen this as a particular threat because of the price differential," Lund says.

I certainly hope the Tier 1 operators remain cautious about dropping their prices on these unlimited rate plans. The flat-rate pricing game is a low-margin business that has to be carefully managed. Right now networks can probably handle any additional voice traffic that the flat-rate plans attract. However, if the price goes down, traffic will surely go up and quality of service will suffer. -Sue

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