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Mobile Prices Unlikely to Be Affected by AT&T Decision

Paul Budde

Contrary to what some financial analysts would have us believe, it is highly unlikely that the price increases for mobile broadband services which were recently announced by AT&T will be replicated by other mobile operators around the world.

The mobile market in the US is one of the least regulated and therefore one the most monopolised markets in the western world. It is well-known that monopolies or duopolies within unregulated markets are very lucrative, and that is what AT&T is currently taking advantage of. With an ineffective regulatory system it is left to consumers and in particularly consumer advocacy groups to put political pressure on Congress. However, AT&T has been very successful in lobbying Congress to not interfere in any decision made by the incumbent telcos. Despite all the hype and spinning behind the announcement — that they have done this for their customers — the general reaction in the US has been that this price increase is happening largely because of lack of competition and it will largely be hem — and not their customers — who will benefit. We rarely see telcos making charitable decisions in favour of their customers.

There are not many good long term commercial reasons at all to increase prices for mobile services. In order for telecoms services to be successful they need to be affordable, and there is a direct link between prices and penetration. If the mobile market was limited to let's say the top 25% broadband users only, then higher prices could perhaps be fetched. However operators are relentless in wanting to increase penetration, and penetration can only be achieved by lowering prices.

While the current lack of bandwidth capacity for mobile broadband may be a reason to keep prices relatively high, this lack of capacity will also hamper higher market penetration and therefore limits growth. So a higher price which might result in a higher ARPU will only apply to a rather limited group of customers who can afford to pay that price. However, because mobile operators are not niche market players they will always pursue mass markets. With more spectrum becoming available and new technologies increasing the efficient use of that spectrum (LTE), the telcos will, as a result of competition, lower their prices in order to increase penetration.

Mobile operators largely play in the utilities market — basic mobile broadband access. The real value-add comes from smart phones and the newly emerging Apps, and it are these sectors which are leading the value-add developments in the mobile broadband market, not the telcos.

Furthermore, because mobile is rapidly becoming an essential utility, the market is being increasingly regulated, which will limit the prices operators can charge for mobile facilities.

So it is unrealistic for some financial analysts to claim that the AT&T price increase is heralding a new era in the telco market where higher prices will apply from now on. There is no way back.

By Paul Budde, Managing Director of Paul Budde Communication Paul is also a contributor of the Paul Budde Communication blog located hereVisit Page
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