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W IRELESS S ERVICE P ROVIDERS Kasey Harbes Elizabeth Kelley Dylan Hull Zachary West.

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Presentation on theme: "W IRELESS S ERVICE P ROVIDERS Kasey Harbes Elizabeth Kelley Dylan Hull Zachary West."— Presentation transcript:

1 W IRELESS S ERVICE P ROVIDERS Kasey Harbes Elizabeth Kelley Dylan Hull Zachary West

2 W HY W IRELESS I NDUSTRY ? Access to communication services has become a necessity in America Growing online business has increased demand for wireless internet access Households with only wireless phones doubled from 2007 to 2010 from 15.8% to 29.7% Number of pricing plans available is incredibly high IntroductionIndustryPricingRecommendation

3 T HE INDUSTRY Industry Description Industry Structure Markets Competition Key Success Factors Main Competitors HHI IntroductionIndustryPricingRecommendation

4 D EFINING THE INDUSTRY SMS and MMS Wireless telecommunications equipment rental Operation and maintenance of switching and transmission facilities Wireless internet services and other non-messaging data Selling cell phones and other wireless devices Wholesaling wireless infrastructure capacity to telecommunications resellers Local, long distance and international calling Main SegmentsMain Activities IntroductionIndustryPricingRecommendation Percent of Industry Revenue

5 M AJOR M ARKETS IntroductionIndustryPricingRecommendation Percent of Industry Revenue

6 I NDUSTRY S TRUCTURE Element Life Cycle StageGrowth Revenue VolatilityMedium Capital intensityHigh Industry AssistanceNone Concentration LevelHigh Regulation LevelMedium Technological ChangeHigh Barriers to EntryHigh Industry GlobalizationLow Competition LevelHigh IntroductionIndustryPricingRecommendation

7 C OMPETITIVE L ANDSCAPE High competition with a steady trend Internal competition Service Based Product innovation Geographic coverage External IntroductionIndustryPricingRecommendation

8 K EY S UCCESS F ACTORS Developing close relationships in complimentary industries Access to capital investment for funding Ability to quickly adapt to technology changes Brand recognition Exclusive product sales contracts Economies of a scale IntroductionIndustryPricingRecommendation

9 M AJOR C OMPETITORS Market Share IntroductionIndustryPricingRecommendation

10 HHI Verizon: (36.5) 2 AT&T: (32.1) 2 Sprint Nextel Corporation: (15.4) 2 T-Mobile: (10.7) 2 Other: (5.3) 2 1, , = 2,742.4 = HHI Recall: HHI > 1,800 is a highly concentrated market IntroductionIndustryPricingRecommendation

11 P RICING S TRATEGIES Second Degree Pricing Penetration Pricing Locking-in Tacit Collusion IntroductionIndustryPricingRecommendation

12 T WO P ART T ARIFF Service composed of two parts Wireless Service Device Service Plan IntroductionIndustryPricingRecommendation

13 T WO M AIN P RICING M ODELS Subsidy Model Pros Customer Retention Customers locked in service contract Cons High customer acquisition cost Transparent Cost Model Pros Serves a niche market Lowers customer acquisition cost Earlier profitability Cons Price shock relative to market prices Higher customer churn rate IntroductionIndustryPricingRecommendation

14 S UBSIDY M ODEL Mainly used by major competitors What factors influence subsidy? Upgrade fees on subsidized phones Source: and IntroductionIndustryPricingRecommendation

15 T RANSPARENT C OST (P REPAID ) Serves a niche market Pay as you go or by days No contract commitments Savings roughly = subsidy Verizon 2 Year Contract GoPhone Prepaid GoPhone Pay by Day Contract Savings 450 Min.$40$50n/a 240 Unlimited$50*n/a1.99/day Source: IntroductionIndustryPricingRecommendation

16 O THER P RICING S TRATEGIES Versioning Customers self select pricing based on usage Primarily based on usage and location Confusion Pricing Customers fail to identify best value Over 10M service combinations across top 4 competitors Bundling Common across 2 nd tier competition Common to bundle unlimited texting or data IntroductionIndustryPricingRecommendation

17 P ENETRATION P RICING High fixed cost industry and heightened barriers 2 nd Tier firms can undercut competition Low variable costs IntroductionIndustryPricingRecommendation

18 U NLIMITED I NDIVIDUAL P LANS Verizon - $120/month (36.5%) AT&T - $120/month (32.1%) Sprint - $99.99/month (15.4%) Virgin Mobile - $55/month (<5%) IntroductionIndustryPricingRecommendation

19 Lock – In CostsVerizonAT&TSprintVirgin Mobile Termination Fee 2- year contract Standard Phone $175$150$200$100 or $20/month Advanced Phone $350$325$350$100 or $20/month L OCK I N C OSTS IntroductionIndustryPricingRecommendation

20 Two firms agree to play a certain strategy without explicitly saying so. T ACIT C OLLUSION AT&T Verizon IntroductionIndustryPricingRecommendation

21 I DENTICAL P RICING P LANS AT&TVerizon Individual Plans 450 minutes$ minutes$59.99 Unlimited$69.99 Family Plans 700 minutes$ minutes$89.99 Unlimited$ Messaging 1000 Msgs$10.00 Unlimited$20.00 IntroductionIndustryPricingRecommendation

22 Offer many of the same devices Similar contract agreements Similar termination fees T ACIT C OLLUSION C ONTINUED IntroductionIndustryPricingRecommendation

23 Verizon – 36.5% Market Share AT&T – 32.1% Market Share Possible reasons: Network externalities Geographic advantages T ACIT C OLLUSION C ONTINUED IntroductionIndustryPricingRecommendation

24 A NALYSIS & R ECOMMENDATIONS IntroductionIndustryPricingRecommendation

25 I NDUSTRY C URRENTLY Industry is thriving and experiencing fast rates of growth Year Revenue in Millions IntroductionIndustryPricingRecommendation

26 I NDUSTRY OUTLOOK Increased demand for wireless data services Wireless has started replacing land lines Expanding demand for wireless data services will offset declining voice-only service demand Tablet Computers E-Readers IntroductionIndustryPricingRecommendation

27 W IRELESS D ATA S ERVICES Verizon’s early adoption of LTE technology will soon be followed by AT&T and Sprint Consumer experience dependent on several factors Verizon’s upcoming mobile video network may put strain on broadband data allocation

28 I NDUSTRY O UTLOOK Revenue outlook predicts continued growth Revenue in Millions Year IntroductionIndustryPricingRecommendation

29 A DVERTISING E XPENDITURES VS. M ARKET S HARE IntroductionIndustryPricingRecommendation

30 I NDUSTRY R ECOMMENDATIONS Invest in data intensive infrastructure Bundle data plans across devices Worldwide plans via strategic alliances Move towards less costly mobile devices Partnerships with other companies? Verizon Wireless and Time Warner Cable Potential Partnership IntroductionIndustryPricingRecommendation

31 Q UESTIONS ?


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