A number of news outlets reporting on the U.S. wireless industry think we're in a "price war." Analysts from Credit Suisse and TBR have also used the term. Even FierceWireless has reported on the ongoing wireless "price war."
But not everyone is convinced. Industry analyst Mark Lowenstein (a FierceWireless contributor) wrote in February that "we are not in the middle of a 'wireless price war' in the United States. Despite all the moves so far this year, average spending per household/account is holding up and operator margins have dipped only slightly."
And recent data on wireless bills backs this position up: According to New Street Research data cited by the Wall Street Journal, the average monthly revenue per postpaid customer across the industry increased 2.2 percent to $61.15 in the fourth quarter of 2013, up more than $5 per user from the first quarter of 2010, when the same measure was at $55.80.
So prices have actually continued to go up. Now, this does not take into account recent competitive changes, but let's look closely at them:
- Under Sprint's (NYSE:S) "Framily" plans, a group of at least seven people will get unlimited talk, texting and 1 GB of data for $25 per month per line. Framily members can each pay $20 per month per line to buy unlimited data plus get a new phone every year. So, in theory, customers in that situation could pay $45 per month for unlimited voice, texting and data, which is a large discount, but it also requires seven or more people to be in a Framily group. Otherwise the cost could be as high as $75 per month, since customers start by paying $55 per month per line for unlimited talk, text and 1 GB of data. That's not much cheaper than the $80 per month a customer could pay for unlimited voice, texting and data under Sprint's "Unlimited, My Way" plan.
- AT&T Mobility (NYSE:T) just cut the price of an introductory-level "Mobile Share Value" plan by $15. The new plan offers single-line customers unlimited voice and texting, 2 GB of data, 50 GB of cloud storage and unlimited international messaging for $65 per month, down from $80 previously. The catch is that the new pricing only applies to customers who pay for their phone in full up front, bring their own phone, or use AT&T's Next handset upgrade plan.
- Under Verizon's new More Everything plans, Verizon essentially doubles the data allowance for many plans without increasing the price. For example, Verizon's $40 per month/500 MB plan increased to 1 GB of data, while its $50/1 GB plan increased to 2 GB.
- T-Mobile US (NYSE:TMUS) actually increased the cost of its unlimited data service for its "Simple Choice" no-contract customers, to $80 per month from $70 before, though the new unlimited plan now comes with 5 GB of tethering, double the previous amount. However, T-Mobile did increase data buckets by 500 MB each for its lower-cost plans.
In all of these recent changes, prices are not being cut dramatically. Some plans are getting more data and certain customers are getting discounts if they use handset upgrade programs--but there is no real price war. These moves are more about customer retention in a market dominated by switchers. And the carriers know it.
"I think it's normal, healthy competition, quite a bit of it," T-Mobile CEO John Legere said on the company's fourth-quarter earnings conference call. "I don't think any of the players in the industry have ever used the term pricing war."
Further, this week T-Mobile CFO Braxton Carter noted at an investor conference that, from 2012 to 2013, the actual amount of cash T-Mobile got from customers increased 1.4 percent.
"Let me just reiterate the fact that I know there has been a lot of questions around a price war and if you really look at what's going on really what's the shift of pricing is between service and equipment and really when you do the math, there really isn't much of a price decrease here," Verizon CFO Fran Shammo said during the carrier's fourth quarter conference call.
Enter SoftBank CEO Masayoshi Son, who said on Monday that combining Sprint and T-Mobile would allow him to start a "massive price war" in the U.S. market. "I would like to have the real fight, OK? Not the pseudo fight, the real fight," he said in an interview with PBS's Charlie Rose.
So what would a real price war in the U.S. look like? It could look like France, where Iliad-owned Free Mobile has shaken things up and forced incumbents to cut prices dramatically by offering services far below prevailing market prices, including a plan for around $28 per month without a contract that includes unlimited voice, texting and 20 GB of 3G/LTE data. Competition has grown so fierce there that Vivendi, which owns the operator SFR, is looking to offload SFR to a competitor.
Another option is that Sprint could just offer more data for the same amount of money, said 556 Ventures analyst William Ho. "If I were an operator, I would just preserve my ARPU and price points and give away more data," he said. "That's what consumers see as value--you get more stuff for the same price point."
Son, in his interview, said he would be willing to postpone profits to get more market share. "I want to be No. 1, right?" he said.
I imagine that if Son launched a "massive price war" he would need to dramatically undercut T-Mobile's $80 per month price for unlimited data, or offer significantly faster data speeds--or both.
I'm not sure what a massive price war would do to Verizon and AT&T. Right now they're nibbling at the edges with price adjustments. Would they be forced to dramatically reduce their prices? I think it could happen only if customers started leaving the two larger carriers in droves--by the millions.
However, I think anything that reduces the cost per GB of data for U.S. consumers would be a good thing--after all, LTE is far more efficient in delivering data than 3G, so consumers should benefit as a result. We'll see if Son needs T-Mobile to spark this price war, or if he'll do it without a deal, because right now there isn't a price war going on. --Phil