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Will The Mobile Price War Spread to Prepaid?

As of today, two of the four national mobile operators are engaged in an all out price war. Things started with a wimper on Monday when new Sprint CEO Marcelo Claure announced doubled data for family (not "framily" which is being phased out) plan users.  Claure and his boss Softbank head Masayoshi Son have been promising to turn Sprint around with "very disruptive" pricing. Industry analysts panned the increased data for family plans as unlikely to help Sprint much because it wasn't a price cut and is $60 a month more expensive for existing Sprint customers than for new ones.

T-Mobile countered today with a promotion that encourages its customers to recruit their friends to switch to T-Mobile. If a Sprint, AT&T or Verizon customer comes to T-Mobile as a result of a customer's referral both the new and old customers get a year of unlimited data for free or a $10/month account credit if they are already on an unlimited plan.

Sprint responded to the T-Mobile referral promotion by announcing a new $60/month individual plan that includes unlimited talk, text and data for $60. This plan is $20 cheaper than T-Mobile's unlimited everything plan and is available to current customers who are out of contract.

I expect T-Mobile will respond to Sprint's $60 plan. It won't be that hard as Sprint's $60 plan is inferior to T-Mobile's in two respects. Sprint's plan, unlike T-Mobile's comes with a caveat buried in the fine print of the plan's promotional page, that says "Other plans may receive prioritized bandwidth availability." which I take it to mean that when the network gets congested $60 plan users data connections will be throttled or dropped. T-Mobile's $80 plan includes 5GB of hotspot use while. hotspot is extra on the Sprint plan at 2GB for $19.99 or 6GB for $49.99.

So far all the changes have been on postpaid plans. It would be nice to see lower prices  and more data on prepaid too and I think we will, eventually. But the carriers would much rather add new postpaid customers because they are more profitable (the $60 Sprint plan is around $80 after taxes and fees in most states). Prepaid customers are also much more likely to leave when a better deal comes along. Even with no contracts, there's more lock-in with post paid because of installment phone plans.

Sooner or later prepaid prices will be drawn into the price war. Sprint's Claure has to prove himself and that means reversing Sprint's subscriber losses. T-Mobile is the fourth largest US mobile operator in number of subscribers and CEO John Leger has set a goal of passing Sprint into third place. Because prepaid customers are more willing to switch carriers and are more sensitive to pricing, cutting prepaid plan prices is an easy and easy way to gain customers. I think T-Mobile and Sprint will both try to lure prepaid customers with attractive new pricing starting before Black Friday. If AT&T and Verizon start seeing subscriber losses they will be drawn into the price wars too. How low will prices go? I wouldn't be surprised to see unlimited talk and text plans under $20/month with no data and under $30 with 500MB to 1GB of high speed data from the likes of T-Mobile's MetroPCS and GoSmart, Sprint's Boost and Virgin and AT&T's Cricket.

Price wars bring short term savings to customers but tend to have unpleasant side effects. To meet low price points, carriers will cut costs in areas like customer service staffing levels and by reducing dealer compensation, which could dry up the supply of deeply discounted airtime sold online. MVNOs will be badly hurt by a price war unless they can negotiate the lower wholesale pricing they need to match or beat cut-rate carrier plans. While I don't think there's much change of any of the carriers failing that's always a possibility and with less competition prices will rise.

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26 comments:

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  1. I think after the pricing bloodbath, in about 3-4 years, we inevitably will have only 2 cell carriers in the U.S.(guess which ones) and will remember the good ol days, not to long ago, of bargain prices.

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    1. You might be right, both T-Mobile and Sprint are not doing well at all, and eventually will be sold in pieces to AT&T and Verizon, so lets enjoy the price wars as long as we can.

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    2. Doesn't matter.
      By that time there will be community wifi that will kill them off much like landline and long distance.
      Its already occurring where I live. We have districts with square miles of free wifi running at 64mbps on my smartphone, tablet, and chromebook.
      I am very close to cancelling my broadband service at home.

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    3. I'd love to see that happen. Here in San Francisco, after years of promises municipal WiFi is limited to a few square blocks and rarely works. Where in the world are there square miles on 64Mbps public WiFi?

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    4. Dennis, where IN San Francisco is there municipal WI-FI? The only place I know of is the SFPL...where I can get 65Mbps...and when it closes, one needs to stand in front of the windows/doors to stay connected!

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    5. wewa: Community wifi will hardly make any difference at all for mobile phones. Even if you assume the most ambitious community wifi projects come to pass, they will still only cover a tiny part of the country.

      Yeah, it might make people cancel their broadband at home in some cities. But that is competition to home internet (DSL, cable, etc), not mobile phones.

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    6. OldNoiseBruin, municipal WiFi it's supposed to be live along Market St. from the Emarcadero to Castro. I've only noticed it at Stockton and Market. The SSID is San_Francisco_Free_WiFi

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  2. I know which carriers will remain Verizon mobile and Sprint &TT

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  3. Even with low pricing these two carries will still make money as long as they get subscribers in large amounts like T-MOBILE is doing now. Once Sprint get their network upgraded and continue having these prices, they will survive and make money. On top of that they have the back up of Softbank.

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  4. T-Mobile has no long term strategy, just antagonizing AT&T.

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    1. Actually, I think T-Mobile's long term strategy is to be aquired.

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  5. I agree with Dennis. If we are seeing these prices in postpay I'm sure prepaid will change too. The wireless business is getting very very competitive. Prices in the US will soon be like Europe, very cheap.

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  6. The $60 plan is better than T-MOBILE $80 plan. Where I live Tmobile doesn't have a lot of building penetration and the internet is really slow. Sprint spark works great in my GS5. I also have my GS5 rooted so I get unlimited hotspot instead of just 5gb. It's a win win for me.

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    1. No the Sprint plan is not better. Sprint's coverage is better than T-Mobile's at your location so Sprint is better for you. The opposite is true where I live.

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  7. Dennis you forgot to mention that Sprint is also paying for up $350 ETF with this $60 plan. Not bad, cheaper than Tmobile and paying for your ETF , very exciting offer by Sprint. About time they came out with some competitive offers.

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    1. T-Mobile will also pay your ETF.

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  8. Where I live you need Verizon for coverage in and out of city limits. I rather use Verizon Prepaid and pay $65 for 3.5GB of data a month. You can use 4G phones now. So you can buy a quality up to date phone.

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  9. I see the more mediocre new mvnos dropping like flies unless the mvno programs for Sprint, Tmobile and Verizon do something to allow them to keep paying their bills. I see a coming period where the casualty rate for new mvnos will be very very high and won't be worth using a new mvno for both dealers and customers as they will be too unstable and unreliable till the dust settles.

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    1. I agree, MVNO's won't be able to compete and be profitable if prices keep declining. Unless you have millions of subscribers which is very unlikely by any MVNO. Only the stable ones like Boost, Metro, Virgin, are going to stay alive. Which actually are not MVNO but have the majority subscriber in prepaid.

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  10. I thought the price war hit prepaid a year or two ago. Unlimited talk, text, and data for around $35 (or cheaper with throttled data). It would have cost twice that two years ago.

    Don't get me wrong, I'd love to see the prices continue downward. I just am not waiting for a price war in prepaid, as it seems to have started.

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  11. I have cricket and the $40 for 500mb is a joke. Time to get more data.

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  12. Sprint coming out with some good offers. Better deal than Tmobile, att and Verizon. Good job Sprint, let's show the world how you can be competitive too.

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  13. Prepaid price war will be coming soon, get ready for that. Soon we will have unlimited everything for $35 a month.

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    1. PTEL $35 plan unlimited talk-text-data with first 500 meg at 4G LTE speed.

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  14. Didn't the price war happen already?

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    1. Mobile price wars happen periodically. I believe the latest one is just beginning.

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