Industry EconomicsThe PhoneDog - Mascot
Customer Acquisition costRunning a cellular network costs the service providers quite a bit of money. On top of the massive infrastructure costs, there's staffing, advertising, billing, and a host of other business costs to consider. Estimates say that on average the major providers spend $350 on each new customer they sign up, so they need you to spend at least that much on their services just to break even. As such, it's in the provider's best interest to keep you as a customer for as long as possible once they have you under contract.
While competition amongst carriers dictates that they offer consumers the best rate plans possible, it's no secret that the more they're able to bill you each month the happier they'll be in the long run. As such, you've got to spend at least $39.99/month to get the best deals from the major carriers. Cheaper plans not only represent a higher price per minute initially, but they often involve bigger charges for overage minutes and add-on services like text messaging. Once you move into the $40+/month plan category, you'll find carriers are more willing to woo you with deals on nicer phones, service packages, and less costly overage and data charges. Remember, every extra dollar you're contracted for per month is $12 per year they back towards their initial $350 in signing you up to begin with. The more you spend each month, the faster you become profitable to them.
New services are key to a cellular provider's long-term wellbeing. Voice data has become such a commodity over the past few years that carriers have no choice but to look elsewhere for new sources of revenue. Remember when free long distance was hard to come by from a cellular provider? Nowadays any consumer willing to sign a two-year contract expects things like free long distance, free callwaiting/three-way calling, and even free mobile-to-mobile calling to be part of the package. As such, cellular providers must up the ante with attractive new add-on services like high-speed data services, Instant Messaging, and automatic news, stock, and sports information "pushed" to your phone. Again, the more add-ons they can get you to sign on for, the faster you become a profit maker for them.
Equipment Costs and Dealer CommissionsCellular dealers rarely if ever make money on the phones they sell you. Their money is made from the service fees, as described above. Corporate stores and independent dealers alike often take a financial loss on when offering free or discounted handsets and other equipment, but it's worth it for them because of the money they make on your service contracts.
Corporate stores, obviously, reap the monthly fees they charge for your voice and data service, while independent stores make their living primarily from the commissions they collect from carriers for each new customer they sign up. Bear this in mind when shopping for new service, as corporate and independent stores alike are usually more than willing to negotiate a good deal on handsets and accessories if you're willing to sign a new service contract.
Online MerchantsThe Internet has changed the cellular phone industry much in the same way as its affected all other areas of retail sales. Established stores can expand their customer base with the addition of a strong Web presence, while new "online only" operations can get into the retail game with minimal overhead by selling only through a Website and never even opening a "bricks and mortar" store.
Cellular carriers and independent dealers alike often advertise special "Web only" deals on handsets and accessories, as the cost of doing business online is less for them than selling phones in person. While independent retailers can't actually offer reduced rate service plans — those prices are set and controlled by the cellular carriers themselves — they will often advertise better deals on phones and accessories than can be had in the carriers' corporate stores. Many free or discounted handset offers require a mail-in rebate, so be sure to read the fine print and ask questions before signing any contracts you're unclear about.
When ordering service or equipment online, bear in mind that independent dealers can't help you if you have technical or billing questions once your new service has been activated. They're the ones to go to if you have any problems with your new equipment, but you'll still have to deal with the carrier themselves if you have any service-related issues. For many people, this is a non-issue, but some folks prefer the convenience of being able to address equipment, service, and billing problems all in the same place.
Transport feesAs mobile phones have become more feature-laden and sophisticated, third-party vendors have started offering ringtones, wallpapers, games, and other handset goodies for download. Some of these extras are free, some are only available for a fee, but all of them are subject to your carrier's transport fees.
Transport fees refer to the cost - usually measured in cents per byte - that a cellular provider charges for data transfer over their network. Technically the term can apply to data costs associated with email and Web services, but usually "transfer fees" is used in conjunction with the downloading of an independent vendor's offering. So when you're surfing the Web in search of the latest ringtone, don't forget to add your carrier's cost-per-megabyte fee to the cost.