To: slacker711 who wrote (163076 ) 12/16/2013 10:29:12 PM From: slacker711 Read Replies (1) | Respond to A really good analysis of the reasons behind AT&T's move to their Mobile Share Value plansstratechery.com Broadly speaking, there are three ways to grow: increase prices, lower costs, or gain new customers. The iPhone was such a coup for AT&T because it accomplished two of those: the Average Price Per User (ARPU) of an iPhone user was significantly higher than a feature phone user (increased prices), and AT&T stole Apple-loyal customers from the other carriers, particularly Verizon (gain new customers). Over time, more smartphones came into the market, and the iPhone spread to other carriers, but all those smartphones had the same higher ARPU. AT&T and all the other carriers could achieve earnings growth simply by selling feature phone customers smartphones and the associated higher monthly fees that accompanied them. That gravy train is nearly over though, and once it becomes more difficult to raise prices (because there are no more feature phone customers to upgrade to smartphones), the remaining option for growth is gaining new users. And, given the fact that nearly everyone in America will soon have a smartphone, that means stealing customers from other carriers.In fact, it’s this dynamic that explains AT&T’s decision to reduce your phone bill by $15 once your phone is fully paid for. This is obviously a response to T-Mobile’s “uncarrier” initiative which clearly delineated what you paid for cell phone service from what you paid for your phone, and quite successfully at that: Make no mistake – AT&T would rather not give this discount (and that is what makes Stephenson’s remarks duplicitous); until now, smartphone customers spent some number of months paying off their phones with higher bills, and then, once the phone was paid for, postpaid subscribers effectively gave AT&T cash equivalent to their phone’s monthly payoff amount because they didn’t know any better. People who kept phones longer than two years, for example, presuming that ~$20 of every month’s bill was intended for phone payoff, effectively gave AT&T et al. $240 of pure profit in that third year. T-Mobile exposed that, and AT&T is giving some of that money back.This has interesting implications for smartphone manufacturers. As a group, it is bad news; alerting customers to the fact they can save money by not buying a new device increases the likelihood customers find their current phone “good enough. ” As Microsoft is painfully learning in the PC world, any extension in device replacement time is a loss.
