On my cell phone, I don't pay for a texting plan from AT&T, since I use the Textfree smartphone app. I regularly bypass my data plan by accessing the Internet through my TimeWarner Internet service at home and at coffee shops around the city. And while I'm not a big Skype user, I have friends who call all over the world without racking up a dime of cell carrier phone charges using the Skype or Google Voice app on their phone.
We are in a period where the cell phone carriers have essentially lost control of their customers to smartphone apps that use their own cell phones to compete for business in each of the wireless services they try to sell to those customers.
The Department of Justice calling Verizon and Sprint and T-Mobile the main competitors to AT&T -- and worrying about a merger between AT&T and T-Mobile -- completely misses what's happening in the wireless telecom industry.
There is a reason why the prices of phone call minutes, texts and data have been falling rapidly in recent years. AT&T''s main competitive worry is not a slightly cheaper plan from T-Mobile but Skype or Facebook providing phone and texting services for free. Zero price competition is a far scarier prospect and the real driver of competitive price pressure in the wireless industry today.
A New Era in the Wireless Services Industry: As the Federal Communications Commission itself wrote in its 2010 Wireless Progress Report, the traditional mobile phone companies now provide just "one class of services that are part of the larger mobile wireless services industry." Voice, messaging, video and broadband data plans all become individual services sold as part of a broader competitive environment.
Buying a smartphone is now the equivalent of buying a handheld computer with its own operating system that can access applications and services provided by a wide range of competitors. As the FCC says, "each of the interrelated segments of the mobile wireless ecosystem has the potential to affect competition."
The first quarter of 2011 marked the point when smartphones made up the majority (54%) of cell phone sales for this first time. When AT&T launched the iPhone and agreed to cede to Apple so much control of what applications were available to customers, BusinessWeek called the deal a "devil's bargain." Other carriers felt pressured to adopt operating systems like Android with similar app store variety and the rivalry between wireless operating systems is now usually more salient to consumers than that between carriers.
While the explosion of new uses of the phone has meant that the carriers have remained profitable, new competitors providing smartphone apps on the carriers' own phones means those new competitors are competing for market share on every service the wireless carriers provide, from voice calls to texting to video services to access to the Internet. So even as the total "units" sold of each product has increased -- whether of minutes, texts or GB of data -- the price per unit has been crashing downwards almost as quickly towards a price of zero, which is what many of its competitors charge for their competing services.
Carriers Face the Rise of Free Phone Calls: Wireless phone calls have been dropping in the price-per-minute for years. Even as the overall consumer price index increased 34% from 1997 to 2008, the average revenue per minute of wireless voice calls declined from $0.37 to just $0.05, or to less than one-seventh of the revenue per call (see chart):
The leveling off of voice minutes used per customer no doubt has a number of causes, including increased texting and other social patterns, but at least one growing part of the cause is the rise of online phone calls on smartphones with providers like Skype and Google Voice. Given the high costs of international calls, such calls were the earliest heavy use of Skype; as early as 2008, Skype became the largest carrier of international phone traffic, that year carrying about 8 per cent of total international voice traffic. In 2010, analysts estimate that Skype's international traffic volume grew more than twice the volume increase achieved by all telephone companies in the world, combined. But that use of online calls for international use is rapidly shifting to domestic calls as well, especially with the spread of smartphone apps making it so simple for users to install -- and increasing the network of users able to receive the free calls.
Microsoft's announcement this Spring that it would pay $8.5 billion to acquire Skype just added to the sense that the era of wireless voice calls as a separate service category may be seeing its last days. The additional announcement that Facebook would be integrating Skype into its service so that any Facebook friend can be called via Skype with a single click "will kill the phone network" in the words of Information Week's Art Whitman. And Google' new "Hangout" service on its Google + social networking services, which allows users to conduct not just individual phone calls but ten-way video conference calls at the click of a button, will be a whole different kind of competition for carrier since they don't even offer video conferencing on current voice plans.
The Coming Death of Paid Texting : The story of cell phone texting seems to be following the trajectory of phone service, although in a much truncated timeline. Profits from text messaging exploded on carrier lines in the last half decade; between 2005 and 2008 alone, the number of texts users sent on average in a year grew from 476 to 4,183, a jump of nearly 10 times in three years. The introduction of flat rate texting plans both fed this explosion and contributed to the plummeting revenues per text message - from 3.7 cents per text down to just over a penny per text by 2008. [See chart]
The rate of growth has slowed sharply in the last year, with just an 8.7% increase in the second half of 2010 from the prior six months. And analysts are attributing the slowdown to the explosion of new free texting apps on smartphones, including WhatsApp, Kik, GroupMe, textPlus and LiveProfile, the latter which amassed nearly 1 million users in just its first three months in 2011. Heavyweight Facebook entered the fray in March 2011 when it Beluga, a year-old company that developed new ways to send texts to groups of people with one click and other tools not available with traditional texting software.
The announcement, without consultation with the carriers, that Apple and Google will introduce their own texting systems into their core operating systems has just added to what may be the deathnell for paid texting plans within a few years.
Carriers Can't Even Count on Data Plan Revenue: Revenue from data plans may end up being the wireless carriers' only dependable revenue source in coming years. Given the growing data use by consumers, the wireless carriers will no doubt continue to see revenue growth from data plans in years to come, but they will also face fierce competition for those dollars, largely in the form of a proliferation of wi-fi options.
The most constant competitor to carrier data plans will be wi-fi provided at both homes and offices, whether by the wired broadband subsidiaries of the wireless companies themselves or by cable and other wired broadband competitors. Free wi-fi is also often available in coffee shops, restaurants and hotel lobbies around the country and the world, with paid services like iPass, Boingo, and Trustive offering access to a network of wi-fi hotspots in airports, hotels, and other retail and business centers. A rapidly growing innovative alternative is the Fon network, where individuals, by agreeing to buy a special router and share access to their own home or office wi-fi, can access other Fon member' wi-fi around the world, with a global network of 4 million hotspots that grew by 30% just in the first five months of 2011.
A recent study showed that for even moderate users of data, more than two-thirds of their data was downloaded using wi-fi rather than over their wireless plans, while for the heaviest users -- those downloading 2G or more of data each month, more than 80% of their data use was over wi-fi.
For users who want to drop their particular carriers' data plan altogether, they also have the option of mobile wi-fi routers that can accompany them anywhere, with service provided both by other wireless services and now by cable companies like Comcast, which in May 2011 announced they were offering a mobile hotspot with national service using bandwidth leased from Clearwire, which also markets spectrum to Sprint.
Already emerging are what might be called "area wi-fi" options, where whole neighborhoods and even towns may make wi-fi available. In September 2010, the FCC voted to free up specific spectrum for "unlicensed use," including what is often referred to as "super wi-fi," which can potentially connect computers and cell phones several miles away, even when they are behind brick walls. A business group in Brooklyn just made wi-fi freely available to the whole DUMBO area near the Brooklyn Bridge, while the company Towerstream has launched a system of 1,000 wireless routers to blanket seven square miles of Manhattan with wi-fi access, and plans to take a similar system onto nine other cities, including San Francisco and Chicago. A broad range of companies are now allowing wireless customers to bypass their carriers' data plan.
AT&T Faces Increased Competition for Every Wireless Service It Provides: The reality is that the wireless carriers now face competition from major corporate players in nearly every service they provide.
By allowing users to access a wide range of apps and tap wi-fi sources to connect to the Internet to execute those applications, smartphones have essentially disaggregated wireless into separate services segments which users can access on a largely a la carte basis.
While the wireless carriers will no doubt retain a role in continuing to aggregate those services in a more convenient package for users, this new competitive reality means they will face price pressure not just from other wireless carriers but from all the other players providing those individual service segments.
Conventional measures of competition such as traditional market concentration indexes don't capture the new competition wireless carriers face in every segment of wireless services, from voice calls to texting to video services to data connection itself due to this growing proliferation and use of smart-phone apps as substitutes for wireless products such as voice calls and text messaging.
Purchasers of smartphones can avoid paying for voice minutes by making phone calls using Microsoft's Skype app or Google's Voice app, can drop texting plans in favor of Facebook's Beluga texting app, and bypass data plans by connecting through wi-fi at home through any wired carrier's broadband service, or through other wi-fi options away from home.
These options have clearly increased competition in the wireless sector, and their rapid growth portends growing competition in the future in the wireless industry, even if AT&T is allowed to purchase part or all of T-mobile.
Follow Nathan Newman on Twitter: www.twitter.com/nathansnewman
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Likewise, Clear isn't that great either. Not yet at least.
The FCC needs to look forward, and consider that we really do need broadband everywhere, and the private sector isn't delivering. Worse, it's price gouging. We need to develop public broadband initiatives that take the best ideas from Fon, rural WiMax ISPs, municipal fiber like they have in Lafayette, and Meraki, and make a mega-mesh network.
AT&T is so crooked, just in the last month alone they killed off A-List feature AND "streamlined" sms because of their fear of iMessage (when the world knows how inexpensive it is to provide sms, they are banking on handcuffing people by killing options).
Without the merger even proceeding, they are already exercising their power and greed. Imagine what would happen if they killed off competition even more? Oh right, you'd get a bigger bonus from them.
If you forget all the terrible things they've done the last few years, you may want to read here:
http://www.ih8tt.com
So, for millions like myself, the DOJ opposition to the re-monopolization of AT&T is a good thing. In light of all the inaction by the DOJ in recent years, it is a refreshing change.
What must be mentioned here is the lobbying power of AT&T and the other big cheeses in the telecom business, who have spent sickening amounts of money and effort lobbying the FCC and Congress to crush those new pro-consumer innovations. Examples: easily transferable SIM cards (common everywhere else on earth but here), and community-funded local wi-fi networks (crushed in many locales after corporate pressure).
Regardless of the number of cents they make per whatever, they have economic power and have successfully transformed it into political power. For example, none of the math or technology in this article can explain why regulators believe AT&T's argument that eliminating a competitor will enhance competition. Give me some soft money and I might believe that too.
AT&T should be broken up for unethical business practices
See http://www.huffingtonpost.com/nathan-newman/prolabor-progressives-sho_b_883321.html for why most pro-labor progressives support the merger.
How would Sprint takeover T-Mobile ?. They are 16 billion in debt . Who would give them a loan ? Also with those two running on different technologies , Sprint on CDMA and T-Mobile on GSM how could that work ? TMO/Sprint sounds like a disaster . Not to mention the DOJ ruling stated they wanted FOUR national players . Thanks .
Now the carriers not only have added exorbitant data caps, but they have done so while at the same time increasing there speeds, making it even easier to go over those caps.
Please do not make the wireless companies out to be some sort of victims here. They are making money hand over fist.
Do you love Apple-- with its sub-minimum wage workforce in China with multiple suicides among the workforce due to the inhumane conditions? Should AT&T cut consumer bills by lowering wages for its workers, joining Sprint in busting unions to cut costs?
Voice...when was the last time you used Skype over wifi in your car while driving down the highway or the grocery store? Skype is an "ok" alternative to old fashioned land lines with sub-par quality but to say it is replacing cell phones....keep dreaming.
Data...again, you buy data before you use it. Should you go over, you are slapped with heafty overage charges hence WIFI. But your still paying....
Your story would have been better served to examine how cell service providers should be changing their business models to more closely resemble an ISP..
Other than that, you're spot on.
The public does NOT owe AT&T ANYTHING!....not another merger/bailout...NOTHING!!!
AT&T is a good example of how the government could have a contract with a private company to increase the use of national infrastructure, but, with understanding at some point it will be obselete.
Therefore, any company, whether it's IBM/DOS or Microsoft, that recieves initial support from the government to help create a new industry must accept the fact that competition will take you out.
Otherwise, it perpetuates gigantic monopolies that are TBTF and to survive, abuse patent law in order to stop competion and stifle innovation that may eventually make them irrelevant.
Imagine Smith Corona typewriters demanding, through PR articles, that they swallow up every typerwriter company in order to halt the advent of the computer; would society benefit?
NO!
2. Assuming that you do want to get a smartphone and use any of these services, you have to get a smartphone and a data plan from a wireless phone company. The acquisition of T-Mobile by AT&T gives you less choice in doing that.
3. Carriers can certainly count on data plan revenue, because they require you to purchase a data plan (and not only that, but a data plan of a certain size and cost) if you want a smartphone. So, even if you do all your data by wi-fi and never hit your provider's data network, you are still paying for the data plan (and the provider is actually making more money from you, because they're charging you for something you're not using).