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Andrew Davidson 
Susan Menke 
Susan Wolfe 
Lisa Hronek Telecoms
Will Consumers Switch to Prepaid Phones to Save Money?
Prepaid cell phone plans have always been popular with consumers who are looking to control or cut costs. These plans are also popular with consumers who struggled with poor credit that didn’t allow them to sign on for a two-year agreement with a national carrier. The downside with prepaid plans was that consumers were forced to pay the full price for a phone upfront and the phone choices associated with the plan were often limited in selection. Likewise, most prepaid plans did not always include the latest phones, such as the iPhone. However, recently, prepaid carriers such as Leap Wireless’ Cricket service and Sprint’s Virgin Mobile service began to offer higher end phones like the iPhone with their lower cost prepaid plans. Let’s review the prepaid plans from these two carriers in more detail in comparison to a national carrier:
- Cricket sells the 16GB iPhone 4S and the 8 GB version of the iPhone 4 for $500 and $400 respectively. The Cricket plan costs $55 a month and includes unlimited voice, text, and data. However, once a customer has consumed 2.3GB of data, their internet data connection is throttled to a slow crawl.
- Virgin Mobile sells the 16GB iPhone 4S for $650 and 8 GB version of the iPhone 4 for $550. Virgin Mobile’s baseline plan of $35 a month includes 300 minutes, unlimited data, and unlimited text.
- A typical iPhone with a two-year contract from AT&T costs $200 for the 16GB iPhone 4S and a two-year contract for $80 a month ($40 a month for 450 minutes, $20 a month for 300MB of data, and $20 a month for unlimited texting). AT&T’s total cost would be $2,120 for the iPhone and the two-year contract. This is compares to a total two-year cost of $1,820 for Cricket or a two year cost of $1,490 for Virgin Mobile. Therefore, consumers could save $300 with Cricket or save $630 with Virgin Mobile in comparison to a national carrier AT&T. So why are consumers paying more over a two-year period for their phone and their plans?
As mentioned, it only recently became possible for consumers to get top phones like the iPhone or Android on prepaid plans. Additionally, it has been noted that consumers are hesitant to pay $500 or $600 upfront for a phone when they can just pay $100 or $200 initially with national carriers (and pay more later with their two-year contract). This psychology factor likely plays a large role in the low share of prepaid plans, along with the fact that most consumers are not likely to do the math or comparisons between plans. Brand awareness may also be a factor due to the larger marketing budgets of national carriers.
Prepaid plans may not be dominant today, but consumers are always looking for deals to cut costs and save money, which includes their wireless plans. It is highly anticipated that prepaid plans will attract more consumers in the future due to these cost savings.
The Continuous Evolution of the Internet
When we were first introduced to the internet, it helped us instant message people on AOL and in a short time we had Google which managed to find anything in the world we needed. It has since evolved from this simplified snapshot of what the internet provides, to a much more vast and technology-rich landscape where we can watch mobile HD streaming movies and upload our entire hard drive to a Cloud (still trying to figure that one out). One device that has been the turning point in the evolution of the internet is the smartphone.
Smartphones and the internet were meant for each other. Wireless companies originally focused on unlimited calling and texting plans or promoted unlimited text add-ons; but as time passed, data plans were required with the purchase of any smartphone to help utilize their full capabilities. Now with the news that Verizon has tossed its mobile plans that were based off minutes and texts and have focused on shared data plans, it is clear the internet has taken over the wireless industry as well. Due to the speed of data networks, mobile applications have brought endless possibilities to the user and have made calling and texting plans almost obsolete.
Wireless companies knew this day was coming. With advancements in VoIP technology, you can speak to someone across the world and even see them on video using Skype for free – yes, free. Why should I need minutes on my phone when data speeds are fast enough to make calls (or even video calls) over? Even text messaging, which used to be a cash cow for the wireless industry, is slowly being replaced with data based messaging apps like BBM (Blackberry Messenger) and iMessage (iPhone messaging app). Of course all this is only possible when enrolled in a data plan, and that is where wireless carriers plan on charging customers the most in the coming years. The new Verizon plans give you unlimited minutes and texts knowing that it will be irrelevant soon, but when it comes to data, that amount is charged by gigabytes used.
Even TV providers are feeling the pain of data-based content. Services such as Netflix and Hulu Plus make it possible to get a good amount of TV shows and primetime programming streamed through your computer or TV for about $7.99 a month. When customers compare that to an $80+ cable bill, why wouldn’t they contemplate the switch? Even premium channels like HBO and Showtime are allowing access to their content online for streaming through HBOGO and Showtime Anytime, knowing people are beginning to want the content they are paying for whenever and wherever they want it. Mintel Comperemedia is also observing a trend from Q1 2011 to Q1 2012, where TV standalone campaigns have been decreasing while the internet only campaigns are trending upward.
The evolution of the internet has been a quick one. I remember when having a 56Kbps dial-up modem was the premier speed to surf the web, now companies are offering speeds a hundred times faster with even faster speeds likely coming in the near future. With wireless companies and TV providers fighting over the same government-limited spectrum (amount of space to run their wireless networks) they can gather up (more spectrum means being able to offer faster download speeds); it will be interesting to see who will come out with the perfect mix of price and value given to the customer.
Will the Swedish Kronor Soon Be a Relic of the Past due to WyWallet?
The physical Swedish currency of the kronor might be used even less (or possibly even disappear) due to a new mobile payment system. WyWallet, a new mobile payment, could revolutionize the currency in this Nordic country even further and it might even make the country completely cashless. Currently bills and coins only represent 3 percent of the Swedish economy, compared to 7 percent in the United States or an average of 9 percent in the Eurozone, according to the Bank for International Settlements. And this currency percentage will likely decline even further in the country with the new mobile wallet payment of WyWallet.
The four largest telecom operators of Telia, Tele2, Telenor, and 3 launched the WyWallet in Sweden. The four operators claimed the mobile payment service will be available to 97 percent of Sweden’s mobile users. The services from WyWallet will allow person-to-person money transfers, online shopping payments, loading of prepaid cards, and paying for SMS-based services, such as public transport, ticketing, and even voting. WyWallet will also eventually support NFC (Near Field Communication) point-of-sale payments and live testing will begin in July 2012. The WyWallet will initially be available on Android and iOS, but the WyWallet for the Windows operating system will be launched later in 2012.
It is interesting to see that Sweden is taking an all-inclusive approach, with all four major telecom operators equally owning and benefiting from the new mobile payment service. The same inclusive mobile payment approach has also been implemented in smaller countries like Denmark and the Netherlands. We’ve have yet to see a large country, like the United Kingdom or Germany, take on this approach, most likely due to numerous telecom operators within those countries. However, the ISIS mobile payment platform was launched as a joint venture between AT&T, T-Mobile, and Verizon here in the United States in 2010. Notably, Sprint is not a part of the ISIS venture.
The ISIS venture in the United States is a mobile wallet that also uses NFC technology to make mobile payments. The system is already being tested in Austin and Salt Lake City. However, the www.paywithisis.com website states that ISIS ready phones will be available this summer to the general public from AT&T, T-Mobile, and Verizon. It will be interesting if this technology (or another mobile payment technology) will disrupt the payment status quo in the United States and create a common mobile payment standard for us here in the States. Likewise, will the new mobile payment system enable us as a society to become even more cashless?
One thing that most experts believe is that cash will not disappear anytime soon in Sweden (or the United States), even with the introduction of WyWallet mobile payment system. The former deputy governor of Sweden’s central bank, Lars Nyberg once said that cash would survive “like the crocodile, even though it may be forced to see its habitat gradually cut back.” Personally, I think currencies will always survive due various reasons. For example, how would I as a tourist, pay for goods and services when visiting in Stockholm…most likely, I would pay in Kronor. Or, in another example, how do I pay for that hot dog at Hot Doug’s in Chicago that only takes cash? Regardless, it will be interesting to watch and see how these new mobile payment systems evolve over time.
T-Mobile Up For Grabs Again
AT&T recently announced that its attempt to acquire fourth-place U.S. carrier, T-Mobile, is officially dead. Besides being a big loss of potential future earnings for AT&T, it also means the loss of $4 billion, which AT&T now owes to T-Mobile’s parent company Deutsche Telekom in the form of money and spectrum access. So who’s next in line to fight for T-Mobile? It appears that Sprint may be back at it again. Sprint had previously negotiated with T-Mobile, prior to AT&T’s deal, and it might try again in an effort to increase its 17% market share, and stay afloat in a market that is overpowered by AT&T and Verizon. However, there are some obstacles Sprint would need to overcome for a merger to even be possible. One is the severe cash shortage they are experiencing as a result of their recent acquisition of the iPhone. Another is network compatibility issues. At this point this is all just speculation, as there are potentially many buyers chopping at the bit to get a piece of the lucrative wireless market. Until anything is decided for certain, we can definitely expect to see that super tall girl in the hot pink dress a little while longer.