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Android Headliner: Being a US Wireless Carrier is Hard

April 5, 2016 - Written By Alexander Maxham

With the smartphone market being in a plateau these days – between everyone having a smartphone and most smartphones not being much of an upgrade over the previous model – carriers have been having a hard time bringing in new customers, keeping customers, and raising their ARPU. For the uninitiated, ARPU stands for Average Revenue Per User. This is important to carriers more now than ever, with most people only adding extra lines or devices to their account, and carriers not really bringing in new customers without losing some of their current customers. Carriers get money from customers in two ways, one is their plan and the other being their customers buying smartphones, tablets, hotspots, accessories and other products of that sort. In the past few years, this has gotten steadily more difficult to achieve for carriers. And even more difficult to raise ARPU when carriers are dropping prices left and right.

In the past two years, we’ve seen a pretty tough price war going on between Sprint and T-Mobile (with AT&T jumping in occasionally and Verizon staying away for the most part). This has led to a number of customers jumping between carriers for a better deal. In fact, a survey came out earlier this week that stated about 60% of Americans are dissatisfied with their current experience with their current carrier and would jump to another carrier for a better experience. 71% of users also said they’d pay more for better connectivity. That’s something that Verizon has been betting on as of late, and not getting into the price war that we currently have going on. So that percentage is good for Verizon, as well as their competitors.

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One of the big changes among the four US carriers in the last few years has been getting rid of contracts. Only they haven’t really. To put it in layman’s terms, what the carriers have done is gone from having you pay $299 for a flagship and signing a two-year contract, to paying $0 up-front, but you’re paying each month for the phone. In some ways, this is better. For instance, if you pick up a cheaper smartphone, your monthly bill will be cheaper. And if you buy the phone outright, it’ll be even cheaper. However, with the old contract model, if you buy a phone outright, you end up paying the same amount. So it’s good for consumers, but it hasn’t really saved consumers much cash, as of yet.

Carriers have also started doing early upgrade programs. To where customers can upgrade a few times a year without paying an arm and a leg. The only issue with this is the fact that there are tons of used smartphones floating around out there that carriers need to offload. And they are starting to see how hard that is. In fact, that is one of the reasons Verizon used for introducing a few new fees in the past week. Like charging customers an extra $20 to upgrade their phone. Even for those that paid full retail price (which is pretty absurd when you think about it). Verizon has said that this cost is to help them off-set the costs of taking in your old phone, cleaning it up and getting it ready to be sold again.

Perhaps the biggest hardship for carriers right now, is the smartphone market. There are so many “great” smartphones on the market right now, that many customers are deciding not to upgrade and keep their current phone. We haven’t seen much change in flagship smartphones in recent years, with the processors only getting increment updates in terms of power, features, and such. As well as mid-range devices getting better and better and cheaper. In the past year, we’ve seen a good number of sub-$300 smartphones that could hang with the flagships that cost you around $600-700. Like the ASUS Zenfone 2, the Alcatel OneTouch Idol 3, Moto G 2015, Moto E 4G LTE 2015, and so on. All of these work on AT&T and T-Mobile as well. Leading many people to either not upgrade, or stick with a cheaper phone, which means less of a profit for the carriers.

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We’ve heard many reports lately that customers are less likely to upgrading in 2016. The carriers have seen the writing on the wall, they aren’t dumb, and this is why we’re seeing so many BOGO options, especially for the new Samsung Galaxy S7, Galaxy S7 Edge and even Apple’s new iPhone SE, all of which launched in March 2016. This is a promotion to get customers to buy more smartphones, and get more of them to upgrade. Which in turn drives more money to the carriers and makes their shareholders happy.

Carriers are in an unique spot. Using a wireless carrier is a necessity for most people, because we all need a phone. But carriers do need to keep investing in their network so that their customers don’t get dissatisfied and decide to leave and go elsewhere. Carriers are also needing to bring in more customers, or at least, more connections so that they can continue bringing in money. It’s tough out there for wireless carriers, especially with the amount of competition that’s happening in the US right now. There may be only four major carriers, but they are all fighting tooth and nail for every single customer.

Lately it seems like carriers are a bit confused. Let’s take Sprint for example. Not too long ago they decided to get rid of contracts, following T-Mobile. Then just a few months later, they decided to bring them back. Being the only US carrier to offer contracts right now. Sprint stated that they wanted to give their users more choice when purchasing a phone. When they already do leasing, monthly installment plans and full retail price for these phones. It’s a good idea to give consumers more choice, but it’s hard to say that many of them would want to sign a 2-year contract again. Especially with the competition having foregone those contracts.

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Wireless carriers have seen that data is the “next big thing” – not to take anything away from Samsung, but this is why we’ve seen unlimited data go away for the most part, and seeing capped data plans. We’ve also seen data being whitelisted for some apps. Like Verizon’s Go90 no longer counting against your plan. As well as T-Mobile doing Binge On and Music Freedom. So far, the FCC has given the green light to T-Mobile about Binge On and Music Freedom, but that may change in the future. Since its inception, both programs have gotten a ton of great feedback from customers, as it saves them data, and most of all the services are free.

There maybe a smartphone plateau right now, but wireless carriers are looking elsewhere. Many are looking at tablets. With T-Mobile giving you free 200MB of data each month for tablets, and more of the high-end ones coming to Verizon and AT&T. Speaking of AT&T, they have also been getting into the car game. Bringing your vehicle to your cell phone bill, so you can have 4G LTE in the car, no matter where you’re going. The smartphone plateau affects smartphone manufacturers the most, but it also affects wireless carriers, since they are selling these phones for the manufacturers – at least here in the US. And right now, the US wireless carriers appear to be in a state of confusion.