After years of rising cell phone bills, costs for U.S. cellular services have been plummeting recently. The Labor Department’s monthly report from May 2017 revealed that the consumer-price index for cell phone service providers had dropped 12.5 percent from May 2016. One month before this report, in April 2017, this index had fallen 13 percent, prompting the Federal Reserve to attribute the decline as a factor in the country’s low inflation. Now, consumers are using their cell phones more than ever, and cellular service is an expensive, but inevitable burden, as about 80 percent of Americans have a smartphone. In June 2016, the Labor Department recorded that an average household pays $1,074 for its wireless service.
One of the main causes that may account for this steep drop is the return to unlimited data plans for many major wireless phone companies. Executives once claimed that these plans were illogical for their companies’ economic models. AT&T Inc. and Verizon Communications Inc. abandoned their unlimited data plans in 2010 and 2011, respectively, in favor for monthly caps on usage. In early 2017, T-Mobile and Sprint began offering appealing unlimited plans, taking customers from competitors, namely Verizon and AT&T. In February, Verizon re-initiated their unlimited data plans, soon followed by AT&T. These plans fundamentally offer free calls and text, as well as the elimination of costly fees imposed when customers go over the monthly usage limit. In 2011, Verizon charged its customers $120 for unlimited data. Now, Verizon’s unlimited plan is $80 per month for one line.
Major phone companies have also abandoned phone subsidies and two-year contracts. This shift officially began in 2013 when T-Mobile moved to monthly installment plans and eliminated its subsidies and contracts on smartphones. Verizon was one of the last carriers to eliminate the two-year contract in early 2017, a process two years in the making. Verizon had been allowing existing customers renew contracts in return for a sizable phone subsidy, while simultaneously discontinuing the two-year contract for new customers back in 2015. These subsidies often obscure costs of phones, and as the model changes, so does the way consumers pay for their phone services. Consumers have already cut back on replacing or buying new smartphones as frequently as they once did, and this modification may result in the production of cheaper smartphones.
Companies saw revenue from their wireless data plans rise for 17 years for every quarter, until the first quarter of 2017. With dropping revenue from their data plans, phone companies are facing tough market competition and are beginning to look outside the cellular industry for ways to raise their profit.
Read more here – “The New Sticker Shock: Plunging Cellphone Bills,” (Ryan Knutson, The Wall Street Journal)