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Why is Wireless Service so Expensive?

Having written a, well, healthy amount of posts this week on the iPhone’s inauspicious Canadian debut, one thing struck me: Why is wireless service so expensive?

There are, no doubt, a litany of financial and business reasons for why consumers pay what they do for wireless service such capital and operating costs. Nevertheless, wireless service is expensive given it’s a popular service with healthy competition in most markets.

A good example is data. The wireless carriers love data and products such as the iPhone and Blackberry because it has a much higher profit-margin than voice. The more data minutes you can convince consumers to use, the more dollars (aka ARPU) and profits you can make.

But why is data so expensive? Why does Rogers charge Blackberry users $80 for 3GB of data, compared with the $2 or so they charge people using their high-speed Internet service? Why does a basic phone package with 150 non-weekend daytime minutes cost $30 when you pay the same price for unlimited use for residential telephone service?

As wireless service becomes pretty much ubiquitous with penetration rates of more than 80%, demand should decline because anybody who wants a wireless device probably already has one. With less demand, carriers, in theory, need to sweeten the pot to attract new customers and keep the ones they have. From what I’ve seen, this hasn’t happened.

And what about the concept of lower wireless prices? In the long-distance market, for example, prices plummeted when markets were de-regulated and open up to competition. In the wireless market, prices keep going on – and they will keep going up even with the introduction of more competition.

The reality is there little real competition in wireless markets so there’s little need to use lower prices as a strategic tool. At the same time, consumers have been conditioned over the years to accept high prices because a wireless device is something that offers freedom, convenience and lifestyle flexibility.

It’s a sweet business for carriers, who are pulling in some amazing profits now that their networks have been built out. Consumers, however, will continue to cough up some serious coin even if they believe the service is too expensive.

More: Speaking of high-margin wireless products/service, tech guru Walter Mossberg has a review on the new iPhone. His take: “If you’ve been waiting to buy an iPhone until it dropped in price, or ran on faster cell networks, you might want to take the plunge, if you can live with the higher service costs and the weaker battery life.”

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  • http://www.goebel.net/technews/ Markus Göbel’s Tech News Comments

    Ask A. T. Kearney and the GSM Association, representing more than 750 GSM mobile phone operators across the world!

    In their argumentation, mobile operators charge so much because data users aren’t price sensitive anyway.

    http://www.gsmworld.com/news/press_2008/press08_46.shtml

    As if only rich suckers whose bills get payed by their employers wanted to use the mobile internet.

  • http://www.davidmcdonald.org David McDonald

    And if you think the Canadian data rates are expensive, take a look at an example of Australian data rates for the iPhone

  • http://todds.typepad.com Todd Lamothe

    To add salt to the wound, Bell and Telus are going to be charging for incoming text messages starting in August. Presently, people are only being charged for outgoing texts. Good way to raise ARPU, most people who are sending messages are probably receiving them back.

  • magic

    we need better unlimited data pkgs lets say 50g for 100.00 a month