Friday, September 10, 2004

Straight talk from Odlyzko

Everyone's favorite telco guru, Andrew Odlyzko, has a good little post on how 3G cellular telephony will succeed even though the TV on your cellphone vision it once promised will never materialize.

He makes a distinction between penetration (what % of a population has a cell phone) and usage intensity (how much the average cell phone is used). Even though cell phone penetration is very high, usage intensity remains quite low--certainly when compared to landline usage intensity.

Flat rate pricing does most to increase usage intensity, and the prevalence of block minute plans in the US goes some way to explaining why usage intensity is high here and rising, as penetration continues to approach European levels. In Europe, although the penetration is higher, usage intensity is much lower, and falling. I don't know what's happening to prices there, but as more and more marginal customers become cell phone owners, one would expect the average usage intensity to fall.

In the US, cellular pricing is moving towards flat rate all-you-can-eat. Right now, most plans have early mornings, nights, weekends, and in-network calls for free. It's easier to list what's not free, which is simply business hours for out-of-network calls. Sprint's recent Fair and Flexible plan goes against this flat-rate pricing trend, and offers a genuinely new pricing product. Time will tell if it's successful.

UpdateIt's been pointed out to me that TV phones are already here. This is true, but WAP is already here as well, and I would not consider that a success either.


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