The iPhone, Text Messaging, Cellular Competition, and Your Money

The iPhone has finally arrived in Canada with an array of plan options, Bell and Telus have just announced new incoming text message charges, and there will be three new carriers vying for cellular customers by 2010.  It has been an unprecedented few weeks in the Canadian cellular market.  Though there has been a deluge of press coverage, most consumers are still in the dark about what these changes mean to them and their wallet.   

Cell phones have become a fashion item, a personal statement, a lifeline, a business tool, an entertainment conduit, and a must-have 24x7 accessory.   Over 50% of the world’s population now carries a mobile phone.   This has grown rapidly from just 12% of the world’s population in the year 2000.   In Canada, there are now over 20 million active cell phone accounts representing over 60% of the population.   In more than 30 advanced wireless countries, mobile phone penetration has surpassed 100%.  In these advanced wireless countries, as a precursor of the future in Canada, mobile phones have also taken on the roles of electronic wallets, personal televisions, and much more.

Why so much hype?  The introduction of the iPhone in Canada heralds the beginning of a new era in mobile communications. Though referred to as a phone, it is much more.  It is an Internet connected portable computer with a revolutionary user interface.  It portends the mass market emergence of the mobile Internet – the Internet in your pocket.  As a platform, it is as revolutionary as the first IBM PC with DOS.  Just as during the early days of the personal computer, there have been other smart phones on the market for several years, the iPhone however arrives with the ecosystem elements to drive the smart phone into the everyday lives of consumers.  

 From an ecosystem perspective, the iPhone combines an attractive piece of hardware with an elegant, innovative, and class leading user interface.  With Safari, it has by far the best mobile Internet browser.   With the unique iPhone App Store, it is by far the easiest way for consumers to discover, purchase, and install software on a mobile phone.  This is evident in the 10 million downloads from the App Store in just the release weekend of the 3G iPhone.   According to Apple, there are now more than 800 native iPhone applications available via the App Store, with 200 of them offered free of charge.  The completeness of the developer kit and the focus on creating an easy take to market, transaction, and billing and collection capability for developers will ensure that iPhone functionality grows tremendously as software developers create innovative new programs, ultimately leading to further consumer adoption.

So what does this mean to the end consumer?  When the first cell phone went on sale in Canada on July 1, 1985,  the vast majority of the population saw it as a specialized niche business tool instead of the must have mass market accessory that it has become.   Certainly, the majority of the population did not expect to be personally paying over $60 per month in 2008 for this new cellular service.  In the same way that the cell phone and home high speed Internet have become integral necessities of life for many, the mobile Internet will become an integral part of the lives of the majority of Canadians in the next 5-10 years.  Whether it is an iPhone or a competitor device, a great majority of us will not be able to leave home without it.  All of the world’s information available all the time, the Internet in your pocket, will become an indispensible part of everyday life.  And of course, plan to budget an additional $30 to $50 per month to feed this habit.

In the middle of the Rogers and Apple iPhone PR blitz and resulting Canadian consumer rebellion, as evident by www.ruinediphone.com’s  60,000 plus signatures, Bell and Telus announced that they are both going to begin charging for  incoming text messages at 15 cents per message for customers not on bulk text messaging plans.   By timing it this way Telus and Bell may have hoped to slip quietly under the iPhone PR and the Rogers iPhone plan pricing backlash.  Instead the media positioned it as a continuation of the consumer backlash story, just as the Rogers plan story was beginning to crest.  

By introducing this additional charge, Bell and Telus will double their usage based text messaging revenue with all of the increased revenue coming in at 100 percent profit.   They currently collect 15 cents per message from the sender.  Now, with this change, they will also collect 15 cents from the receiver.  That is a doubling of price for text messaging without any change in the cost or the usage.  Consumers were noticeably upset and the media fanned the anger by discovering confused consumers that worried that their text messaging charges would increase by hundreds of dollars.   Notifying these heavy users that they could mitigate these hundreds of dollars of additional charges by subscribing to bulk text messaging plans for $15 or so per month would not have made for the same sound bites.

Nonetheless, the release o f the much anticipated iPhone, Roger’s mismanagement of the data plans, and the Bell and Telus text messaging profit grab has further fueled the love hate relationships consumers have with their cell phone and the cell phone carriers.  Consumers are heavily attached to their cell phones but across the board feel that they are being unfairly gouged by the wireless carriers.  Whether it is an ever escalating System Access Fee, or excessive long distance pricing, or much feared data pricing, or all of the small additions such as text packages and caller ID packages that take a $30 plan and turn it into a $60 bill every month.   The new Rogers data plans as well as the new charges for incoming texts add to the already confusing array of packages, options, unknowns, and pricing that every consumer faces.  Whether intentional or not, this confusion works to the benefit of the big three cellular carriers.  When faced with the difficult task of comparing plans, options, and unknowns, consumer behavior dictates that, in general, consumers will avoid the stress by simplifying their decision.  In this case, consumers simplify their shopping down to a brand, a phone, and a local minutes package.  Ignoring and passively accepting that they will be charged some unknown amount for everything else.  

Lost in the excitement of the iPhone launch, the Rogers data plan backlash, and the Telus and Bell profit grab, has been the news that there will soon be two to three new carriers in each market that will compete for cellular customers against the incumbents Telus, Bell, and Rogers.  This good news for consumers comes as the federal government’s process for awarding new cellular spectrum licenses approaches completion. 

Industry Canada initiated an auction for new cellular spectrum this year that set aside part of the spectrum for non-incumbent carriers.  This auction is almost complete and the resulting new landscape is becoming evident.  

Likely beginning in late 2009 to early 2010, each market in Canada will see the emergence of two to three new carriers.  The incumbent cable companies will begin to offer cellular service in their cable territories: Shaw in the West, Videotron in Quebec and parts of Ontario, and Bragg in Atlantic Canada.  As well, Globalive will offer service in most parts of Canada outside of Quebec and a company called DAVE will offer service in large and medium sized cities in Ontario and Western Canada. 

The incumbent cellular carriers will prepare well to defend against the new entrants through strategies such as using their flanker brands Fido (Rogers), Solo (Bell), and Koodo (Telus) to take away market opportunity, and by incenting customers into long term contracts.   The new entrants however will still change the dynamic of the market.  The strength of the incumbents in the market, and the high cost of both the spectrum and network build, will force the new entrants, especially the non-cable company entrants, to enter the market aggressively or risk an early demise.

The new entrants are all expected to build GSM technology networks and Telus and Bell are rumored to be considering a conversion to GSM technology.   From a consumer perspective, this means that as in Europe and other regions, consumers will not have to change their phone every time they want to change a carrier.  As well, Rogers, by virtue of its GSM network, will no longer have a monopoly on GSM only phones such as the iPhone.

Additional carrier choice, a single network technology, and an aggressive approach to market share should portend better pricing and offers for consumers. 

To help navigate these changes in the cellular industry from a consumer perspective, we have summarized a list of Top 10 Tips for Managing Your Cell Phone Bill

1.       Avoid signing up for service contracts that will extend past early 2010.  The emergence of new carriers in late 2009 and early 2010 will lead to much better market pricing from both the incumbents and new entrants.

2.       When shopping for a new plan, compare plans at a total bill level, including all options, fees, and charges.  This is can potentially add up to twice the advertised local minutes plan charge so it only makes sense to compare plans based on the expected monthly bill versus just one plan component.

3.       Shop at independent dealers, such as Wireless Wave, instead of corporate stores.  Our general experience has been that sales people at independent dealers seem to work harder to build the best package deal for customers. 

4.       Get the sales people to do the work for you.   The best way to shop for plans at the total bill level is to have the sales people build the lowest total bill options for your needs.  We recommend taking your last two bills with details on your usage; Minutes usage levels (local, long distance, outgoing, incoming, evenings, and weekends), text usage levels, data usage levels, and options, to independent carrier dealers and letting them build the lowest cost total bill plan that they can to meet your needs.  Have them email you the results and you can easily compare total bill options across carriers. 

5.       Corporate Plans.  Plans available to larger corporations can cost 15% to 30% less than those offered to individual consumers.  If you have anyone in your family that works for a large corporation, have them check with their HR or IT department to see if the corporate cellular contract allows for employee purchases.

6.       Do not use the carrier’s long distance.  Carrier long distance charges are much higher than home or office long distance charges and are one component of your cellular service that can be easily avoided.  For long distance calling from your cell phone, use services from companies like Alligato Mobile.  They work well with your cell phone, are very convenient, and cost very little.

7.       Do not use the carrier’s roaming.  Roaming charges are very expensive and can easily add more than $1 per minute to your voice usage costs.  If you travel frequently, use a service like Maxroam that offers very cost effective roaming calling from most of the countries in the world.  If you only need occasional access to roaming, purchase a local prepaid phone or local prepaid SIM card from a shop at your airport of arrival.  All international airports usually have shops that offer easy access to these products and they will save you a bundle on calling from your destination country.

8.       Use more text, less voice, and avoid an email plan if you can.  As part of your package, purchase a bulk text package and use text instead of email.  An average user can communicate as well with an average text message as he or she can within an average email.  Just strip away the unnecessary words and get to the point.

9.       Wait to purchase the iPhone.  If you can bear to wait.  As per Tip #1, avoid locking yourself into a long term contract when significantly better offers will be available in 12 to 18 months.

10.   Use your phone less.  Just kidding – we know you can’t.