Wednesday, June 6, 2012

How Will Mobile Service Providers Cover Fixed Costs as Voice Usage Drops?

There will be predictable griping if U.S. and other mobile service providers change retail packaging of voice services in the future, perhaps dropping the "buckets of minutes" plans of various sizes with "one size fits all" unlimited plans.

From a service provider perspective, the ways revenue is offered at retail include both a usage and a fixed cost recovery component. In that sense, how much consumers get charged for a bundle of features and services is partly a matter of traffic sensitive and fixed costs that basically don't change much.

The potential shift of voice calling to unlimited plans is a response to the "fixed costs" part of the cost recovery issue. One can debate whether all network and other fixed costs are appropriate or not. But those fixed costs don't change much based on which services--ranging from text messaging to voice to broadband data--users decide to use.

The simple fact is that the sunk costs of running the network must be recovered, no matter what the usage-sensitive patterns are. And if users are shifting from voice to Internet apps, or from text messaging to over the top messaging, the fixed costs still must be covered.

So a shift to "unlimited" calling is simply one way of recovering the fixed cost portion of providing the full package of features people associate with mobile phones, especially smart phones.

Precisely how those charges are levied will vary from time to time and carrier to carrier. The point is that fixed costs don't change because usage of some apps, services or features changes over time.

Not everyone will be happy with how retail features are priced. Some will complain that profit margins on some products are "too high." That doesn't actually matter much, either. All multi-product retailers sell products with varying margins, some high, some low, some in between. From a mobile service provider's perspective, the main issue is ensuring that the fixed costs get covered.


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