AT&T and Verizon are about to put the squeeze on subscribers [View all]

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http://news.yahoo.com/t-verizon-put-squeeze-subscribers-150012507.html

AT&T and Verizon are about to put the squeeze on subscribers
By Tero Kuittinen

Noted mobile analyst Chetan Sharma has released his latest U.S. Wireless Market Update. It’s a grim road map to rising smartphone ownership costs for most Americans. AT&T and Verizon Wireless now hold 65% of the U.S. mobile subscribers. Since 2009, Verizon has added about 15 million new contract subscribers, while AT&T gained about 8 million. Sprint and T-Mobile have lost roughly 5 million contract subscribers each over the same period. This is why you will wake up one beautiful morning next autumn and discover yet another new surcharge or rate hike by the Big Two — their power continues to wax.

One trend illustrated by Sharma is strikingly ominous: the revenue American operators derive from new subscribers has dropped to just 2% of their overall sales. In the year 2000, it was still over 20%. This means that there is no sales growth to be had from chasing new customers; all the upside is now in squeezing more money from existing subscribers. The new family plans pushed so hard by leading carriers effectively lock in entire households for good. Once you have two to four people on one family plan, switching carriers becomes prohibitively cumbersome.

Smartphone ownership in America has now topped 85%, soaring far above the global average of 50%. So AT&T and Verizon have increased their market share decisively since 2009; they no longer get meaningful revenue from new subscribers, so they don’t need to offer attractive new price plans; they no longer can increase sales by pulling feature phone buyers into smartphones; and they are successfully locking people into near-permanent family plans.

The only road to revenue growth is now increasing the monthly bills of existing smartphone subscribers. That’s you and me.

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http://bgr.com/2013/05/24/att-administrative-fee-analysis/

Why is AT&T milking subscribers for an extra $500 million? ‘Because they can’
By Zach Epstein on May 24, 2013 at 9:55 AM

AT&T said earlier this week that it will add a new administrative fee to each of its wireless subscribers’ monthly bills. The fee is only $0.61, which doesn’t sound like much, and an AT&T spokesperson was quick to point out to several news sites that this new fee is lower than similar fees charged by rival carriers. Subscribers were still outraged. Now that the shouting has died down a bit, however, people are looking for a batter explanation for the new charge they’ll see each month. According to one industry watcher, that explanation couldn’t be simpler: “Because they can.”

“Why would AT&T do this? Because they can, and it is all in the pricing strategy,” Joe Hoffman, principal analyst at ABI Research wrote in a post on the company’s blog. ”Now that AT&T is comfortable with their shiny new pricing tools and flexibility that comes with them, looks like someone in the Executive MBA program has discovered Price Elasticity of Demand.”

Hoffman explained that AT&T has almost nothing to lose by adding this new fee — $0.61 per month is unlikely to scare many people away — and everything to gain. As a matter of fact, in one fell swoop, AT&T just added between $500 million and $600 million in revenue to its bottom line.

“Why 61¢, why not $1 or $5 or $10? Because AT&T understands price elasticity of demand,” Hoffman wrote. “When AT&T raises the price by 61¢, they know hardly anyone is going to bail on them, and so can impose this with impunity. $1 or $5 or $10 is just too much to swallow all at once, but give them time. For now, $500 – $600 Million will flow right to the bottom line. Brilliant! No fancy software tools, no focus groups, no high priced engineers and programmers, and no iPhone subsidies. Just a raw, brute force price increase.”