Unlimited Data and Unlimited Potential: The Rise of Alternative Wireless Service
Genna Liu, Dartmouth Business Journal
Competition is in the future of the wireless service market in 2016. More and more customers are turning to an alternative to traditional cellphone contracts—mobile virtual network operators, or MVNOs. Some of the more well-known companies include MetroPCS, Straight Talk and Virgin Mobile, and customers are flocking to them in large numbers. According to the statistics firm, Strategy Analytics, MVNOs increased their share of the U.S. retail wireless subscription market from approximately six percent in 2009 to a little over ten percent in 2015. Meanwhile, three of the Big Four—AT&T, Sprint, Verizon and T-Mobile—are projected to decrease in their portion of the market.
MVNOs are changing the rules of cellphone plans. First, as opposed to traditional mobile network operators (MNOs) like AT&T, MVNO providers do not own and control all of their network infrastructure. Instead, they arrange business agreements with MNOs and obtain bulk access to the latter’s network services at wholesale rates. Instead of the banal two-year contracts offered by large wireless carriers, most MVNOs provide no-contract cellphone plans with no hidden access fees. Under these carriers, customers can freely exit their services any time without a penalty fee, giving them maximum flexibility
These companies’ popularity has not gone unnoticed. On the contrary, they have influenced the behavior of the wireless service sector. The Big Four is following their footsteps and phasing out binding two-year contracts, which require customers to stay in a contract until the device and service fees are paid in full. They also began to eliminate termination fees for users who abandon their service before two years.
T-Mobile was the first to reform, announcing its “uncarrier” strategy on March 26, 2013. It introduced a basic unlimited talk and text and 500MB of data plan, onto which customers can add increments of data for more money. The company also gave customers the option to purchase a new phone through monthly installments. As opposed to two-year contracts, this plan allows customers to leave anytime without penalty, as long as they submit the remaining installment fees.
Shortly after, Verizon continued down a similar path, asking customers to either pay for a new device in full upfront or spread the cost of the device over monthly payments. After completing payments, they can choose to either keep the phone or trade it in for another device.
AT&T ended its two-year contract policy on Jan. 8, 2015, switching to a similar full-retail price purchase and installment plan for cellphones. As of January of this year, Sprint remains the only Big Four member that has not explicitly announced terminating two-year contracts, although it has pushed back its advertisement of such plans. Statistics from Chetan Sharma Consulting shows that the company dropped from third to fourth place in the Big Four standing in mid-2015.
MVNOs can no longer be ignored as small, irrelevant companies. First, the advantage of subsidized prices for phones under two-year contracts is evaporating. While customers were formerly enticed by two-year contracts’ promise of a low upfront payment for a new device, they now can choose among more affordable options. With the array of less expensive unlocked phones such as Motorola’s Moto X and Moto G, priced at 500 and 180 dollars respectively, customers are not forced to purchase a device under a specific provider.
Furthermore, because of arrangements that allow them to use nationwide networks of larger, established companies, they can provide fast, competitive services such as network coverage and speed of service. For example, Virgin Mobile uses Sprint’s host network while Straight Talk has arrangements with all of the Big Four. MVNOs’ usage of large host networks enables them to often provide more service at less cost. Straight Talk campaigns on its 45-dollar per month plan with unlimited talk, text and data, and Virgin Mobile advertises a similar plan for 35 dollars per month.
MNOs also benefit from this exchange through its network wholesale. They acquire a larger market share by garnering “more subscribers on the network,” as Matt Carter, president of Sprint wholesale and emerging solutions, stated in an interview. Similarly, T-Mobile views these emerging companies as a way to reach out to a wide range of consumers. While the Big Four carrier plans cater more to heavy data users and large families, MVNOs offer consumers with moderate data needs a less expensive alternative with their prepaid plans. Because they gain a share of these carriers’ revenues, large wireless network operators benefit economically from the growing prosperity of MVNOs.
In a Consumer Reports survey regarding traditional cellphone service, which bills customers at the end of the month, customers gave higher scores to small carriers rather than major retailers. Consumer Cellular ranked the highest in satisfaction with a score of 89 while Sprint placed last with 67 points. The prepaid service category, in which customers are billed in advanced without a contract, saw a similar trend. Republic Wireless, another MVNO, took the top spot with 87 points, while Sprint again ranked last with 67 points.
Although MVNOs are showing incredible growth, they still need to resolve a few dilemmas in order to more effectively compete against the established companies. For one, users complain about inadequate and unstable customer service on behalf of MVNOs. Lack of knowledge, untimeliness, and incompetent communication are just some of the complaints listed by customers on Consumer Affairs. The Big Four’s customer service, in comparison, is both more satisfactory and well rounded. T-Mobile nabbed the top prize in J.D. Power’s customer-care survey in 2014, and AT&T received that same honor in 2015.
In addition, despite business agreements, host networks still prioritize their users for data usage, leaving slower service for MVNOs. According to The Verge, MetroPCS recorded a download speed of 8.1 mbps—megabits per second—and upload speed of 5.2 mbps, while T-Mobile observed 22.7 mbps and 13.2 mbps in those same categories in 2015. Even though speeds between 3.2 mbps and 7.8 mbps are typically sufficient for customers, the difference is visible through tasks like downloading apps.
With the rise of MVNOs, the reign of two-year contracts and monopoly of major carriers have ended. The emergence of lower cellphone prices and more flexible plans have also tipped the scale in favor of these smaller companies. By formulating improvements and reforming their customer care and service, MVNOs will remain a formidable and active voice in the wireless industry.
How will the Big Four respond? Major carriers will likely use their advantages—wide network coverage and large selection of phones—and expand on their technology. Verizon is leading the way and developing 5G wireless networks, which it describes as enabling “50 times the network throughput of current LTE networks,” as described by RCR Wireless News. With the rise of MVNOs, do not expect major carriers to remain reticent – customers can expect lower prices and better technology in the future of wireless service