Globalstar smacks forehead; finally realizes [three years and $$billions too late] that they'll get a lot more customers who will use a lot more minutes if they cut their minute prices.
<"Our Canadian customers continually tell us how much they love the clarity, reliability and capability of making calls from areas where cellular or traditional telephone service is unavailable, and we are delighted to pass along new pricing that is up to 75 per cent lower," said Peter White, general manager of Globalstar Canada.
"This aggressive pricing will attract a vast, new array of potential customers who are interested in our services, but are looking for more affordable and flexible pricing. We've already had tremendous success in Canada, servicing more than 4,500 companies and organizations since our launch two-and-a-half years ago, and have achieved very strong market penetration in every single vertical market." >
Next thing you know, they'll be talking about subscribers' hourly rates in relation to minute demand. Well, give them a few years - ideas have a long gestation time in telecommunications.
Unfortunately, they couldn't bring themselves to cut the minute prices to the optimum level.
Mqurice
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Here's the old price stuff again!
*** Pricing *** We know from billions of phone calls through thousands of systems that phone call minutes are very sensitive to price.
Globalstar has sold 58,000 handsets and perhaps 50 MOU per month per handset at $2 a minute or $1.50 a minute or thereabouts with the average about $1.80 per minute.
So, if a subscriber uses 50 minutes in a month and pays $1.50 a minute, that's $75 a month.
If the price was cut to zero, they would use about 1000 minutes a month [from Leap sales figures].
Here are the figures for between those two:
$2.00....xx ......................................................................................................30 MOU x $2 = $60
$1.80....xx ..............................................................................................40 MOU x $1.80 = $72
$1.60....xxx ......................................................................................50 MOU x $1.60 = $80
$1.40....xxxx .................................................................................70 MOU x $1.40 = $98
$1.20....xxxxx .......................................................................... 90 MOU x $1.20 = $108
$1.00....xxxxxxx ................................................................... 120 MOU x $1 = $120
$0.80....xxxxxxxxx ........................................................ 150 MOU x $0.80 = $120
$0.60....xxxxxxxxxxxxxx .......................................... 220 MOU x $0.60 = $130
$0.40....xxxxxxxxxxxxxxxxxxxxxxx ...................... 350 MOU x $0.40 = $140
$0.20....xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ............. 550 MOU x $0.20 = $110
$0.10....xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ..800 MOU x $0.10 = $80
$0.00....xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Flat Fee = $120
Minutes 0.....100.....200.....300.....400.....500.....600.....700.....800.....900.....1000
That's a rough guess to fill in the graph between the points we more or less know.
So somewhere around 40c a minute to 60c a minute will maximize income. But to generate a full system, customers have to get a bargain, so it's far better to err on the cheap side than expensive [as both Iridium and Globalstar found out at the cost of $30 billion in market capitalisation and something like $10bn in investment down the drain].
By erring on the cheap side, there is no loss of revenue [the lower minute price is made up with increased minute sales and since the marginal cost of a minute in the existing constellation is zero, that's no loss to Globalstar]. But there is a big gain in subscribers lining up to buy and a much reduced time to reaching a full constellation.
So, to be on the safe side and maximize profit in the shortest time, it's obvious that a price per minute of between 15c per minute and 50c per minute will maximize revenue. Since it would be far easier to sell service with 15c a minute than 50c a minute, I think that 15c a minute would be far better financially than 50c a minute because the constellation would fill probably 4 years sooner than at 50c a minute.
Then, when the constellation is full, a much, much, much more interesting thing happens. To avoid busy signals, we will have to put the price up. With luck, we would have to put the price up to $1 a minute to hold demand at manageable levels. We would scramble to get the next constellation launched at which time we would be able to treble our income and offer more advanced services with total global coverage.
That estimated price versus MOU graph is based on the wealthy USA market. In poorer places, that graph will be lowered according to the average "hourly rate".
So you can see Kyros, that by lowering the price, we get much more revenue and we get it a lot sooner. Which would enable us to raise prices to slow demand to achieve equilibrium much sooner. Which would mean we'd get the next constellation up a lot sooner.
So, we should have a retail price of 15c a minute for mobile phones and 10c a minute for fixed phones. Then we'd really get some excitement going and start bringing in big piles of money from subscribers who would be relaxed about yakking away to their heart's content.
The stockpile of phones would suddenly be in big demand and we could sell them for a big profit instead of the pathetic ebay price of $450 or so. search.ebay.com.
QUALCOMM would get excited and start their production lines up in a big way. They'd put all those engineers back on Globalstar.
At 15c a minute, we'd undercut terrestrial roaming heavily. There is a lot of competition getting in trouble when we cut our price below 40c a minute and at 15c a minute, they are doomed [which is a slight exaggeration because not everyone will want the big handset, poor battery life and link budget problems even if it's cheap]. |
