Can You Hear Me Now?
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At one time making phone calls was the predominant use for mobile phones. Now, with smartphones, talking on the phone is becoming secondary to the other functions. However 2/3 of monthly bills come from voice charges. It is important to the carriers that they maintain the overall amount of monthly bills. At the same time carriers need to acknowledge that customers want more data and less voice. According to the CTIA average mobile minutes used peaked at over 800 several years ago and has been dropping steadily ever since.
There is good reason for customers to be shifting their cell phone needs. 50.4% of US mobile customers now have a smartphone. On smartphones there are many apps that duplicate functionality customers had been paying through the nose for. On Apple’s (NASDAQ: AAPL) iOS platform iMessage, an Apple built app provides an alternative for texting and multi-media messaging for users of the iPhone, iPad or Mac computers. iMessage uses 3G/4G or Wifi and thus does not use your texting plan. Apple also makes a video calling application for their devices called FaceTime. At the moment all of these applications are limited to Apple devices. However the potential for these applications or ones similar to reduce what consumers pay for voice and texting is clear.
Google (NASDAQ: GOOG) also has several free offerings on multiple platforms that overlap with services provided from the cell phone carriers. Google Voice is one of them and will actually give you a phone number, voice mail, and texting functionality through a web browser, Android or iOS device. Thus allowing you to text for free over 3G/4G and Wifi and allowing you to make calls from your laptop or desktop through Gmail. Through Google’s social network, Google +, there is additional communication functionality in the form of an instant messaging interface and a video calling feature similar to Facetime called Google Hangouts. Google has stated that there are millions of people using its Google Voice service, especially the internet based calling through Gmail. Google Voice also includes Caller ID, Call history, Call screening, custom voicemail messages and voicemail transcription. Google is also testing out MMS for Google Voice through Sprint. Every Sprint phone number is now a Google Voice number and includes Google Voice functionality through deeper integration announced in 2011.
Microsoft (NASDAQ: MSFT) also has the potential to jump on the bandwagon and offer traditional mobile phone functionality for free. This would mainly be done through their 8.5 billion dollar purchase of Skype. The purchase which was completed in 2011 was Microsoft’s largest and with 663 million registered users Skype has a huge install base. Deeper integration of Skype with Windows Phone, Windows 8, Windows RT and the Xbox 360 could see video and audio calling along with a messaging platform rolled out uniformly across all Microsoft products. There are already Skype apps on the major mobile platforms as well as Windows and OSX. Rumors of Skype for the Xbox and deeper Skype integration with Windows Phone could see Skype take on a whole new life as the default communication platform throughout all Microsoft products.
With these and many other offerings similar to them cropping up, reducing and potentially getting rid of voice plans that let customers choose how many minutes to pay for will allow mobile operators to hang onto the cash cow that is voice plans. While customers are using fewer and fewer minutes, 681 on average down from a high of 826 and dropping according to the CTIA, customers are being pushed into signing up for unlimited voice plans. 80% of new T-Mobile customers get the unlimited option which runs $70 per month. Others are slowly shifting to lower voice plans such as Verizon’s (NYSE: VZ) 450 minute option which costs $40 per month, a trend carriers want to stop and could stop by getting rid of all voice plans other than unlimited.
This shift to unlimited already happened on AT&T (NYSE: T) and Verizon with texting. As the two companies saw free texting services gaining traction they dropped tiered texting plans and now only offer an unlimited texting option for $20-30 per month. Now to get any texting plan you have to get an unlimited one even if you will be mostly using Google Voice or iMessage.
This will soon be the case with voice plans, "The industry's definitely moving towards unlimited," according to AT&T’s Ralph de la Vega. Carriers will call it a move toward simplicity and customers will see it as a way to save, because the unlimited plans have been cut from $100 per month to $70 over the years. But in reality they will be losing out because voice, texting and data are just different forms of data and yet the mobile companies get to charge you three different ways for the data. AT&T CEO Randall Stephenson even went as far as to say that within two years we could have data only plans, though he did not mention whether this was actually the strategy. Should this come to pass voice and texting would just be considered another form of data.
Data costs will thus become ever more important as all forms of communication on smartphones will use data. We have seen AT&T and Verizon drop their unlimited data plans in favor of tiered plans and T-Mobile throttles their unlimited data customers. This leaves Sprint as the only one of the big four mobile operators to still have a truly unlimited data plan. Indeed Verizon has just announced its Share Everything plans which will launch later this summer and will include unlimited texting, unlimited minutes and 1-10GB of data per month. Verizon will soon only offer unlimited voice and texting plans for their new smartphone customers. They will charge for tiered data plans starting at $50 for 1GB and going to $100 for 10GB. Currently the mobile companies are having no problem holding onto their legacy services and their respective monthly fees. However going forward as they become wireless internet service providers not phone companies the amount they can charge for data will be crucial for their long term profitability.
ded004 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
