Competition between two or more companies in the same industry is supposed to keep prices lower. When two brands are battling for your business, they’ll do almost anything to get you onto their team. So why are American cell phone bills going up instead of down?
Just last week AT&T (T) announced a price cut from $80 to $65 on a base plan for customers with no contract. This just a day after T-Mobile (TMUS) doubled the amount of data available on their base plan (while also raising the price on their unlimited data plan from $70 to $80).
TV commercials, billboards and online ads tell the story of AT&T, Verizon (VZ), T-Mobile and Sprint (S) undercutting one another with the latest and greatest low-priced plan. But according to an article in Monday's Wall Street Journal, the average revenue per customer has gone up $5 since 2010.
Part of this is due to a shift in the types of plans being offered by the major carriers, an overhaul that is slowly moving consumers away from the classic two-year contract under the guise of giving them more choices.
“I think what’s happening here is we’re seeing the un-bundling of the whole cell phone package,” says Yahoo Finance columnist Rick Newman. “People used to think their phone was free but they actually paid for it over the life of a two-year contract and that’s changing.”
It means your bill may no longer be one neat and tidy package. The onus to figure out just what you’re paying for is on the customer more than it’s ever been before. While the AT&T’s of the world are coming out with “new” plans that promise to save you money, they may, for example, not include enough data to be useful, and that’s where the real money is being made.
“People are just using their phones more,” Newman points out. “Think about streaming, for example. Hardly anybody did that just a couple of years ago when we were in the land of the two-year contract. A lot of people are streaming now. That’s a huge data suck, as we know, and that’s the kind of thing that pushes your bill up. This is just gonna continue. More and more people are going to be using their mobile devices for more things.”
So data is a big reason your bill is going up. But what about that competition? Shouldn’t wireless companies be driving data prices lower to compete for your business? No.
Newman says the reasons are two-fold:
1 - “There’s a huge physical network that goes along with all of this and the mobile companies are continuing to build that mobile network...that’s a big cost that just has to get passed along to consumers.”
2 - “This is a brand new technology still. Use of mobile technology is still exploding so demand continues to go up. When demand keeps going up that doesn’t push prices down, that pushes prices up.”
Yahoo Finance Tech Reporter Aaron Pressman weighed in on the topic and believes reports of higher bills are overblown. He thinks the change has more to do with the shift from “dumb” to “smart” phones and the carriers are simply reaping the benefits.
Pressman says, “To be sure, the industry data is backward-looking and price cutting activity seems to be accelerating in 2014. But after T-Mobile spooked Wall Street with its fourth quarter earnings report last month, all the carriers have gone into damage-control mode, insisting that they’re not engaged in the very price war they seem to be in the midst of waging.”
What do you think? Are you prepared to pay more for your wireless service or do you think there are deals to be had while competing companies slug it out for your business?
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