Its package of unlimited voice, text messaging, and data for $120 a month could change the rules of the wireless game
Sprint Nextel has quietly begun pushing all-you-can-eat wireless calling plans that, if adopted on a wider scale, could take a big bite out of rivals' sales.
Last month, Sprint (S) started selling a package in San Francisco that provides unlimited voice, text-messaging, and data services for $120 a month. For an extra $30, customers get all that, plus unlimited mobile broadband access. The plans, available for a limited time only, are the first of their kind for a major U.S. wireless service provider.
At first, $120-plus for wireless calling may sound high, but for some people it could represent a discount on a range of calling services. Many providers charge in the neighborhood of $60 a month for roughly 900 minutes of wireless voice, including free nights and weekends, plus an additional $60 a month for unlimited wireless Web browsing and $15 a month for unlimited text messaging. That adds up to $15 more than Sprint's new plan.
The Plan of the Future
The cost savings are potentially greater for people who use an unlimited wireless calling plan in lieu of landline phone service and for those who use the broadband plan instead of dial-up or even digital-subscriber-line high-speed Internet access. While the Sprint connection speeds aren't as fast as those available over DSL or a cable modem, convenience trumps speed for some users.
The upshot is that if the trial is successful—and analysts say it will be—and it's put in place across the country, competition is likely to accelerate amid communication-services providers. Sprint could pick off customers of landline providers such as AT&T (T) and Verizon Communications and prompt other wireless carriers to follow its lead. "Once one carrier offers it, others will have to do this as well," says Craig Mathias, principal of wireless consultancy Farpoint Group. AT&T is the biggest provider of wireless calling; Verizon Wireless, owned by Verizon (VZ) and Vodafone (VOD) of Britain, ranks No. 2. Verizon Wireless has no plans to offer unlimited calling, says company spokesman Jim Gerace. Cingular Wireless and Sprint declined to comment.
Whatever the plans at the top three, unlimited wireless calling is an idea whose time has come, analysts say. Today, a tiny fraction of the 233 million U.S. wireless users snap up unlimited mobile plans from smaller companies like Leap Wireless (LEAP), Amp'd Mobile, MetroPCS Wireless, and SureWest Communications. But within three years, as many as 20% of U.S. wireless users could move to such plans, says Jerry Kaufman, president of wireless consultancy Alexander Resources. "I wouldn't be surprised if unlimited becomes the choice among consumers," he says.
Currently more than two-thirds of Leap's 2 million customers opt for high-end unlimited plans, up from 50% a year ago, says Al Moschner, executive vice-president and chief marketing officer at Cricket Communications, Leap's wireless service brand. In the fourth quarter, the outfit added 262,000 subscribers (see BusinessWeek.com, 2/14/07, "IPO Time for Virgin Mobile USA?").
The draw is convenience, as well as price. "Customers want simplicity, customers want predictability," says Bill Stone, president of Amp'd Mobile, where a quarter of postpaid subscribers buy unlimited plans. Many consumers pay a single fixed price for local, long-distance, and Internet access; it's a safe bet they'll want the same for wireless calling.
As that happens, wireline service providers will suffer. In five years, 40% of U.S. consumers will do all their voice calling over mobile phones and won't have a landline at all, up from about 15% today, Mathias estimates. The proliferation of unlimited wireless calling will contribute to the trend, he says. Mobile-phone companies "would very much like to compete with wireline—and win," says Mathias. Verizon shed 366,000 residential customer lines in the fourth quarter alone, many of them to mobile-phone carriers.
Taking Another Tack
Rival wireless carriers are likely to feel the impact, but it won't all be negative. An unlimited plan will probably cost less than the services sold separately, but many customers are currently paying less than that because they've opted not to purchase all of the services. Still, many customers will likely be willing to upgrade to an unlimited plan—at a higher cost than they're currently paying. "We are a big believer there's a segment out there that would pay a premium for that simplicity and predictability [offered by an unlimited calling plan]," says Stone of Amp'd, which sells its unlimited plans for $115 to $150 a month. By offering an unlimited plan, Sprint might actually be able to increase its average revenues per user, an important financial metric, by selling more expensive plans to more users.
Sprint Nextel could certainly use a growth boost. Sprint Nextel's network glitches and an ineffective ad campaign have contributed to its loss of 306,000 postpaid subscribers in the fourth quarter to rivals such as Verizon Wireless, Cingular/AT&T, T-Mobile USA (DT), and smaller service providers. Unlimited plans could help Sprint differentiate itself. Verizon Wireless and Cingular/AT&T trumpet network reliability. Historically, T-Mobile has pushed lower prices. Sprint has tried to advertise itself as doing both well, but so far hasn't succeeded, analysts say (see BusinessWeek.com, 2/6/07, "Mobile Services' Marketing Makeover").
Unlimited bundles are rife with risks, though. For one, comparisons among plans will be easier, keeping pressure on overall prices. So even as some customers upgrade to pricier plans, industrywide pricing will remain under pressure. Plus, people with unlimited plans would likely use their phones more—and put more pressure on the carriers' wireless networks.
Still, as competition for subscribers becomes more cutthroat, as U.S. wireless penetration reaches saturation, the more widespread adoption of unlimited calling is "inevitable," says Kaufman.