Marketing 5th Edition by Dhruv Grewal,Michael Levy

Exercise 22

PRICE WARS IN THE CELLULAR MARKET
Cell phone companies may already have all the available customers. Cellular subscriptions will top 7.3 billion worldwide by the end of 2014-which will be larger than the global population. Currently in the United States there are 103.1 cell phones being used for every 100 people.23 This means there are more cellular subscriptions than there are people in the United States. Examining how cell phone companies like Verizon Wireless, AT T, Sprint, and T-Mobile grow once they've run out of potential customers provides a glimpse into the value of strategic pricing.
The Players
With 121.3 million subscribers, Verizon leads the pack. In addition to cellular phone service, it offers broadband capability through its wireless network, which was the first to a offer broadband network in the United States. Verizon not only boasted the first wireless consumer 3G multimedia service, but today it also hosts the largest 4G LTE network. Furthermore, its international presence spreads over 200 countries and has the lowest monthly churn rates, losing only 1.26 percent of customers each month.
AT T traces its roots back to 1876 and Alexander Graham Bell's discovery of the telephone. Although it lags behind Verizon in number of subscribers (110.4 million), it earns more revenue. It also claims to have the fastest mobile broadband network. Moreover, AT T promises the widest international wireless coverage that offers 99.999 percent reliability. With its Wi-Fi network, the company again claims to have the largest international coverage of any U.S. wireless carrier.
Sprint holds third place with approximately 55 million customers. The company's most recent innovation is its leading development of the first wireless 4G service. The company merged with Nextel to provide walkie-talkie service in 2004, but running separate networks through the 2G Nextel service and the 3G and 4G Sprint lines has been expensive. Sprint decommissioned its Nextel services as of June 30, 2013. In 2014, Sprint partnered with streaming music provider Spotify to offer its T-Mobile USA is owned by Deutsch Telecom and was the subject of several acquisition attempts by competitors, including AT T and Sprint, throughout 2011 and 2012. With 46.684 million subscribers, T-Mobile relies on its global partners to ensure worldwide coverage. In addition it is a member of the Open Handset Alliance, a collaboration designed to develop the Android platform and provide innovative mobile services more quickly.
Market Shares and Price Wars
As the cost of cell service has continued to decline, customers' bills have remained flat or decreased. Increasing prices is not an option for building revenue in this market. With no new customers to attract, the major phone companies have sought instead to increase their share of the market. Accomplishing that goal has meant competing ferociously to attract customers from competitors. But if the companies try to lure subscribers with reduced rates, they run the very real risk of causing harm to their economic bottom line. At the same time, the players cannot afford to sit on their hands and do nothing, especially as consumers give up their home phones, leading to contraction in the landline business.
The tactics the competitors use are constantly changing and often confusing to the customer. For example, in 2014, Verizon launched its "Everything More" plans that allow families to have up to four lines, unlimited talk and text, and 10 GB of shareable data for $160 per month. A week later, AT T introduced "Mobile Share Value Plans" that not only matched the $160 price and offerings of Verizon for four lines, but also allowed families to choose to use the same features across three lines for $145 per month or $130 across two lines. Additionally, as several analysts have pointed out, cell phone companies use extremely confusing pricing structures, which likely reduces the chances a customer will switch carriers. The exception to this is T-Mobile, which has responded to these pricing tactics by offering simple to understand, no-contract wireless plans costing between $40 and $80 a month for single lines.
Although it may seem as though everyone is using advanced data plans on smartphones and tablets, there remains a market for voice-only options as well. Verizon Wireless cut prices for its voice-only plans and offers a 700-minute-permonth plan for a single line as low as $30. Similarly, AT T offers similar plans. For $40 per month, AT T subscribers can get unlimited talk and text with a basic phone (nonsmartphone). T-Mobile's cheapest plan also includes unlimited talk and text and similarly costs $40 per month. With Sprint, you'll have to go prepaid (pay at the beginning of the month instead of the end), but you can get 500 minutes of voice with unlimited text for $35 per month.
The goal of cost cuts on voice plans, according to Verizon Wireless CEO Lowell McAdam, is to get customers enrolled in more expensive unlimited plans, especially for data. Capturing market share from competitors is also important, but it does not offer the same value in terms of generating revenue. Verizon Wireless, for example, gave up an estimated $540 million in voice revenue but experienced an estimated net gain of $90 million because of changes in data plan sales and because of the healthier margins associated with data plans.35 Networks account for only a piece of a wireless company's revenue stream. To access voice, text, or data services, customers need handsets, which are becoming increasingly more sophisticated. But here again, companies are cutting prices on handsets in an effort to attract market share. Suppliers of Apple devices sometimes sell the iPhones for $200 less than they have paid Apple for them, just to lure subscribers to their two-year plans.
The war is far from over, especially in such a rapidly changing, frequently innovating market. The rise in demand for high-speed 4G mobile broadband use has challenged overburdened networks, and cell phone companies are forced to invest in their networks to avoid service failures and customer complaints. If voice plan usage drops further, revenue from data plans may no longer provide the margins cell phone companies need. Some wireless providers may consolidate; others will fade away.
What pricing tactics could Verizon use to target consumer customers