Wireless operators hope all-you-can-eat pricing will prove appetizing to consumers still using their landlines.
The new pricing model could also help them in the protracted battle for customers with the cable industry.
Two weeks ago, Verizon Wireless announced its plan, which also includes unlimited data and a slew of premium wireless services.. Within days, AT&T and T-Mobile followed with their own plans. And last week, Sprint Nextel
These new plans naturally appeal to today's heaviest cell phone users. Road warriors who are constantly on their cell phones and who consistently go over their allotted minutes every month will be among the first people to sign up for these plans. But the services could also appeal to a much wider group of consumers looking to consolidate their communications bills by cutting the cord on their home phone.
"These new plans give consumers a much more realistic option for cutting the cord on the home phone," said Roger Entner, senior vice president at IAG Research. "Besides, voice services are going wireless anyway. Even if you have a phone at home, it's likely cordless. And if you're like me you have your home phone or office phone ring through to your cell because it's always with you."
The trend to cut the cord is already well-established. Over 12.8 percent of U.S. households today use a cell phone instead of a traditional wireline phone in their home, according to the CTIA, the wireless industry's trade organization. This is up from 7.7 percent in June of 2005.
Cable operators have also been putting pressure on local phone companies by offering their own version of residential telephony service, which they bundle with Internet and TV services. The phone companies have fought back by offering their own bundles. Verizon and AT&T have even upgraded their networks to start offering their own TV services.
As a result, phone companies have seen rapid declines in traditional land lines. Qwest Communications, which operates in 14 states, lost a total of 738,000 phone lines in 2007.
But with nearly 85 percent of the U.S. population now owning a cell phone, it makes more sense for people to simply cut the cord rather than sign up for home phone service from a cable operator. While the cable companies' phone service offers some enhanced telephony features that the traditional phone companies don't offer, cell phones offer complete mobility, something neither local phone companies nor cable operators offer.
But until now consumers looking to cut the cord had to be careful about using more than their allotted amount of voice minutes. These new unlimited plans put those fears to rest.
While a $99.99 unlimited voice and whatever other cell phone services are included might sound expensive for a cell phone-only service, it starts looking like a bargain to customers also looking to ditch their home phone service.
For example, Verizon charges between $42 and $47 a month for its traditional unlimited local and long distance residential calling service that includes voicemail, caller ID, and call waiting. Verizon Wireless charges $40 a month for its lowest tier of wireless service, which includes 450 minutes of anytime voice calling. If someone is already looking to ditch his home phone, he can get an unlimited plan from Verizon Wireless, which ensures he won't be sneak-attacked with extra overage charges, for only an additional $13 a month.
The deal becomes even more compelling if more services are added or if the total price on the unlimited packages drops. Sprint's plan offers unlimited voice as well as unlimited data, text, e-mail, Web-surfing, Sprint TV, Sprint Music, GPS Navigation, and push-to-talk service, all for $99.99 a month. T-Mobile includes voice, unlimited text messaging, and picture messaging for the same price.
AT&T's plan is only for unlimited voice calls. AT&T customers can get additional messaging plans starting at $5 more a month with an unlimited messaging plan costing an additional $35 a month on standard phones.
Verizon Wireless's $99.99 plan includes unlimited voice and Internet access, and Web-based e-mail. Customers can tack on additional services for a fee. For example, for $119.99 a month, Verizon Wireless customers can get unlimited messaging. And for $139.99 a month, they can get VCast video, VZ Navigator, and Mobile E-mail functions.
Even at the higher prices, it could be argued that Verizon and AT&T are cannibalizing their traditional phone services with this strategy. But the reality is that regardless of whether they introduce a new pricing plan or not, people are still going to ditch their traditional home phone services. For Sprint Nextel and T-Mobile, these plans give them a way to compete with the cable operators.
There is already some evidence that all-you-can-eat cell phone plans really do entice people to cut the cord.
A small regional cell phone company called Cellular South, based in Jackson, Miss., started offering an unlimited, flat-rate plan last year. Unlimited voice for regular cell phones costs $79.99 and the plan costs $99.99 for unlimited voice and data services for smartphones. So far almost 70 percent of their customers have chosen one of these flat rate plans, according to Jeff Kagan, an independent telecommunications and wireless industry analyst. And of those who have subscribed to the services, about 25 percent have dropped their wireline connection, which is double the national average, Kagan added.
"If that holds true for AT&T Wireless, Verizon Wireless and Sprint, we can expect an enormous shift in customers and the technologies they use," he said. "The lower the monthly price, the larger the number of customers will choose it."
Indeed, consumers have a finite amount of money. And as the U.S. economy heads toward a potential recession, consumers' budgets are likely to get even tighter. AT&T has already said that it's seen some pressure on its traditional land-line business in the fourth quarter of 2007 because of the weakened economy. It used to be said that people would never give up their home phones even if in bad financial times. But that isn't necessarily true anymore. Home phones may be one of the first things cut as people rely more on their cell phones, which are with them where ever they go.