Saturday, November 22, 2003

Cellphone pricing

With number portability set to hit this Monday, and the fact that Sprint cannot reach my new basement apartment Boston, I've been looking into getting a new carrier, along with a new phone and plan.

It's been very complicated. The plans themselves are so difficult to understand, that I feel like I'm buying an airline ticket.

Perhaps this is because the cellular phone business is like the airline business. David Anderson, who I've known for a while, has written a good piece outlining why this is so. Essentially, David points out that a wireless network, once built, is a sunk cost and that only the variable costs associated with utilizing that network should be considered -- and they happen to be zero. This is like airlines in that the planes are sunk but empty seats cost the airline money, so airlines should be built around maximizing capacity utilization -- ie. having planes filled with passengers in the sky at all times.

This model applied to phones would focus on getting 1) maximum revenue per customer and 2) getting the customer to use the phone as much as possible. So, when designing phone services and figuring out how to price them, we move from cost/megabyte to revenue/subscriber communication.

Camera phones seem to be popular now, and actually I think they are pretty cool myself, but I would prefer a simple phone with long battery life and ubiquitous reception. It seems that building out reception is actually expensive compared to getting people to shove more data through the pipe they already have, all wrapped around complex pricing schemes, so I don't think I'll see my ideal phone any time soon. Pity.

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