U.S. Mobile Business Becoming a Price Game?

Is the U.S. mobile market heading further in the direction of becoming a price game, despite all efforts by service providers to avoid that scenario? Ask French mobile service providers, who have seen revenues and profit margin plummet after the market entry of Illiad’s Free Mobile.

Vivendi experienced a 60 percent net income drop in one quarter of 2012, for example.

In the U.S. market, contestants including Republic Wireless and FreedomPop are trying to disrupt mobile pricing. But many observers expect the real changes to come from the likes of T-Mobile US or Sprint, both anxious to gain market share, and both newly fortified by their German and Japanese financial backers.

The result is that the relatively stable U.S. mobile market, stable for a decade, is going to face attempts at disruption, and price is expected to be a huge part of the effort.

Unless the U.S. Department of Justice has an unexpected change of analytical framework, there is no chance a merger between T-Mobile US and Sprint would be allowed, a move that would fuel even more competition. That leaves organic growth as the only way to make a material difference in U.S. mobile market share.

Denied further opportunity to merge, and facing quite modest remaining acquisition opportunities, the four leading national carriers have no choice but to attempt organic growth in a saturated market.

Also, the two smaller national carriers have just made billions worth of new investment in their networks and businesses, and will be seeking a financial return by growing their market share.

If you knew nothing but the history of competition in saturated markets, you know what will happen. Price competition will reach new levels. Executives can deny any interest in doing so all they want. Rarely does new competition make serious inroads into any market without upsetting established pricing.

Also, there is the further issue of what happens to prices in a mature market. Some believe the U.S. mobile phone market is nearing saturation. What markets can you think of where saturated demand and abundant supply has failed to put pressure on prices?

Typically, a mature market is characterized by excess capacity, increased difficulty of maintaining product differentiation, increased intensity of competition, and growing pressures on costs and profits.

That is not to discount the value of human agency. Talented and creative executives might be able to create value that run counter to the other trends. But that will occur against a backdrop of heightened retail pricing pressure.