Wireless Carriers Racing to the Bottom

It had to happen eventually – a price war is taking its toll on telecom equipment providers because their customers won’t spend money in some cases unless they can see an ROI of a billion dollars fairly quickly. This comment is attributed to Verizon from a trusted source I can’t reveal.

In my recent meeting with Sprint, they explained how they are racing to the bottom by giving away more for less with their Unlimited Freedom plans. Obviously, these are my words, not theirs.

In addition, the Sprint ads on TV are amazing – they say their network quality is within one percent of Verizon yet a lot cheaper. When put in those terms, its very tough for Verizon to keep charging a premium for their service.

T-Mobile is obviously part of the challenge as well – they’ve been giving away more for less and increasing their value over the years.

Ericsson just put our its numbers for the quarter and an unexpected 14% drop in sales cratered the stock by 20%. This article blames Asian competitors which is obviously part of the problem but the reason carriers buy from Asia is often due to price and price is an issue when you have to charge your customers less for more.

There are two ways of looking at this problem – once a price war has started, there is no turning back. Carriers will continue to be squeezed and so will the companies that sell to them. This is the logical conclusion.

However if you factor in the 1 TB data caps Comcast is putting on their wired service, you realize inevitably, wireless carriers will all do the same, meaning wireless prices could potentially become more meter-based over time.

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The bottom line is customers will have to learn the painful lesson that you can’t get something for free forever from corporations… They have to make investments and can only do so if they will be profitable. As a result, charging the customers with higher usage, more money, is the only logical way to run a company.

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