WIRELESS SERVICE PROVIDERS
Kasey Harbes
Elizabeth Kelley
Dylan Hull
Zachary West
WHY WIRELESS INDUSTRY?
Access to communication services has become a
necessity in America
 Growing online business has increased demand
for wireless internet access
 Households with only wireless phones doubled
from 2007 to 2010 from 15.8% to 29.7%
 Number of pricing plans available is incredibly
high

Introduction
Industry
Pricing
Recommendation
THE INDUSTRY
Industry Description
 Industry Structure
 Markets
 Competition
 Key Success Factors
 Main Competitors
 HHI

Introduction
Industry
Pricing
Recommendation
DEFINING THE INDUSTRY
Main Segments
Main Activities







Percent of Industry Revenue
Introduction
Industry
SMS and MMS
Wireless telecommunications
equipment rental
Operation and maintenance of
switching and transmission
facilities
Wireless internet services and
other non-messaging data
Selling cell phones and other
wireless devices
Wholesaling wireless
infrastructure capacity to
telecommunications resellers
Local, long distance and
international calling
Pricing
Recommendation
MAJOR MARKETS
Percent of Industry Revenue
Introduction
Industry
Pricing
Recommendation
INDUSTRY STRUCTURE
Element
Life Cycle Stage
Growth
Revenue Volatility
Medium
Capital intensity
High
Industry Assistance
None
Concentration Level
High
Regulation Level
Medium
Technological Change
High
Barriers to Entry
High
Industry Globalization
Low
Competition Level
High
Introduction
Industry
Pricing
Recommendation
COMPETITIVE LANDSCAPE

High competition with a steady trend
 Internal competition
 Service Based
 Product innovation
 Geographic coverage
 External
Introduction
Industry
Pricing
Recommendation
KEY SUCCESS FACTORS
Developing close relationships in complimentary
industries
 Access to capital investment for funding
 Ability to quickly adapt to technology changes
 Brand recognition
 Exclusive product sales contracts
 Economies of a scale

Introduction
Industry
Pricing
Recommendation
MAJOR COMPETITORS
Market Share
Introduction
Industry
Pricing
Recommendation
HHI
Verizon: (36.5)2
 AT&T: (32.1)2
 Sprint Nextel Corporation: (15.4)2
 T-Mobile: (10.7)2
 Other: (5.3)2
 1,332.25 + 1,030.41 + 237.16 + 114.49 + 28.09
 = 2,742.4 = HHI


Recall: HHI > 1,800 is a highly concentrated market
Introduction
Industry
Pricing
Recommendation
PRICING STRATEGIES
Second Degree Pricing
Penetration Pricing
Locking-in
Tacit Collusion
Introduction
Industry
Pricing
Recommendation
TWO PART TARIFF

Service composed of two parts
Wireless
Service
Service
Device
Introduction
Plan
Industry
Pricing
Recommendation
TWO MAIN PRICING MODELS
Subsidy
Model
Transparent
Cost Model
Pros
Pros
•Customer Retention
•Customers locked in
service contract
•Serves a niche market
•Lowers customer
acquisition cost
•Earlier profitability
Cons
Cons
•High customer
acquisition cost
•Price shock relative to
market prices
•Higher customer churn
rate
Introduction
Industry
Pricing
Recommendation
SUBSIDY MODEL
Mainly used by
major competitors
 What factors
influence subsidy?
 Upgrade fees on
subsidized phones

Source: http://www.verizonwireless.com and www.att.com
Introduction
Industry
Pricing
Recommendation
TRANSPARENT COST (PREPAID)
Serves a niche market
 Pay as you go or by days
 No contract commitments
 Savings roughly = subsidy

2 Year
Contract
GoPhone
Prepaid
GoPhone
Pay by
Day
Contract
Savings
450 Min.
$40
$50
n/a
240
Unlimited
$50*
n/a
1.99/day
252.7
Verizon
Source: www.verizonwireless.com
Introduction
Industry
Pricing
Recommendation
OTHER PRICING STRATEGIES
• Customers self select pricing based on usage
• Primarily based on usage and location
Versioning
• Customers fail to identify best value
Confusion • Over 10M service combinations across top 4 competitors
Pricing
• Common across 2nd tier competition
• Common to bundle unlimited texting or data
Bundling
Introduction
Industry
Pricing
Recommendation
PENETRATION PRICING
High fixed cost industry and heightened barriers
 2nd Tier firms can undercut competition
 Low variable costs

Introduction
Industry
Pricing
Recommendation
UNLIMITED INDIVIDUAL PLANS

Verizon - $120/month (36.5%)

AT&T - $120/month (32.1%)

Sprint - $99.99/month (15.4%)

Virgin Mobile - $55/month
(<5%)
Introduction
Industry
Pricing
Recommendation
LOCK IN COSTS
Lock – In Costs
Verizon
AT&T
Sprint
Virgin Mobile
Standard Phone
$175
$150
$200
$100 or $20/month
Advanced Phone
$350
$325
$350
$100 or $20/month
Termination Fee
2- year contract
Introduction
Industry
Pricing
Recommendation
TACIT COLLUSION

Two firms agree to play a certain strategy
without explicitly saying so.
AT&T
Introduction
Industry
Verizon
Pricing
Recommendation
IDENTICAL PRICING PLANS
AT&T
Verizon
450 minutes
$39.99
$39.99
900 minutes
$59.99
$59.99
Unlimited
$69.99
$69.99
700 minutes
$69.99
$69.99
1400 minutes
$89.99
$89.99
Unlimited
$119.99
$119.99
1000 Msgs
$10.00
$10.00
Unlimited
$20.00
$20.00
Individual Plans
Family Plans
Messaging
Introduction
Industry
Pricing
Recommendation
TACIT COLLUSION CONTINUED
 Offer
many of the same devices
 Similar
contract agreements
 Similar
Introduction
termination fees
Industry
Pricing
Recommendation
TACIT COLLUSION CONTINUED
 Verizon
– 36.5% Market Share
 AT&T – 32.1% Market Share
 Possible reasons:
Network externalities
 Geographic advantages

Introduction
Industry
Pricing
Recommendation
ANALYSIS &
RECOMMENDATIONS
Introduction
Industry
Pricing
Recommendation
INDUSTRY CURRENTLY

Industry is thriving and experiencing fast rates
of growth
Industry Revenue ($million)
250,000.00
Revenue in Millions
200,000.00
150,000.00
100,000.00
50,000.00
0.00
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Year
Introduction
Industry
Pricing
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INDUSTRY OUTLOOK
Increased demand for wireless data services
 Wireless has started replacing land lines
 Expanding demand for wireless data services will
offset declining voice-only service demand

E-Readers
Tablet Computers
Introduction
Industry
Pricing
Recommendation
WIRELESS DATA SERVICES
Verizon’s early adoption of LTE technology will
soon be followed by AT&T and Sprint
 Consumer experience dependent on several
factors
 Verizon’s upcoming mobile video network may
put strain on broadband data allocation

INDUSTRY OUTLOOK

Revenue outlook predicts continued growth
Industry Revenue Outlook
300,000.00
Revenue in Millions
250,000.00
200,000.00
150,000.00
100,000.00
50,000.00
0.00
2011
2012
2013
2014
2015
2016
2017
Year
Introduction
Industry
Pricing
Recommendation
ADVERTISING EXPENDITURES VS. MARKET SHARE
Introduction
Industry
Pricing
Recommendation
INDUSTRY RECOMMENDATIONS
Invest in data intensive infrastructure
 Bundle data plans across devices
 Worldwide plans via strategic alliances
 Move towards less costly mobile devices
 Partnerships with other companies?


Verizon Wireless and Time Warner Cable Potential
Partnership
Introduction
Industry
Pricing
Recommendation
QUESTIONS?