McGuire’s Law

Update: See the bottom of the post for info on SERO and 4G devices

This morning, Sprint announced a change that is consistent with much of our discussion in the comments section of this blog. As the press release explains it “Today’s ability to do more things on the go – such as watching videos, sharing pictures or checking directions – is not only changing the way we live; it is driving exponential growth of mobile data traffic.” And therefore… “Sprint will increase its postpaid rates by applying a $10 per month Premium Data add-on charge to activations of smartphones beginning Jan. 30. The charge will assist Sprint in offering simple and affordable unlimited plans for its customers while maintaining a wireless network able to meet the growing appetite for a richer mobile experience. Subscribers with smartphones will still receive the best value in wireless, including the Any Mobile, Anytime feature offered nationwide only by Sprint.”

I’ve gotten lots of comments and notes today asking an obvious question for those long-term customers that either already have or are considering upgrading to the SERO Premium plan - does this mean that SERO Premium customers will have to pay another $10 on top of the $10 step up just required on October 1 so that SERO customers could enjoy smartphones?

Good news - the answer is no. You will not be charged another $10 Premium Data charge for most smartphones - it’s included in SERO Premium.

As we’ve discussed at length here, the SERO Premium plans were introduced for precisely the same reason the Premium Data fee is being extended to all smartphones - in recognition of the higher cost associated with devices that naturally drive lots more traffic onto our network. Today’s announcement is just following the same logic for Sprint’s current postpaid plans that was applied for SERO Premium.

If you’re still struggling to understand what’s going on here, on August 21 I provided an analogy that seems to have helped some folks:

An all you can eat buffet is often used as an imperfect analogy for “all you can eat” data plans. Most all you can eat buffets I’ve been to have a tiered pricing structure, not based on how much someone eats (it’s one price, no matter whether you have a single bite or make 5 trips with heaping platefuls) but rather on the characteristics of the customer which are most likely to indicate their capacity to consume the product. Kids 2 and under may be free, Kids 10 and under may cost $5, Adults 10+ may cost $10, and Seniors may cost $7.50.

Sure, some 9 year olds may be able to eat a horse, and some adults may be light eaters, but the simplicity of the pricing and the appeal of “all you can eat” makes it a system that works for the customer and the business. The pricing tiers do a pretty decent job of representing the differential cost in serving different types of customers (on average). Those customers that don’t get their money’s worth maybe should eat at a different restaurant if it bothers them, but most will stick around so they don’t have to worry about how big the bill will get.

Pre-iPhone, the wireless world was made up of kids who really didn’t consume much. The characteristics of the devices just didn’t present that many opportunities to use data. Sure, some customers managed to still eat a lot, relatively speaking, but overall, consumption was pretty low.

Today, customers still using those less data-centric devices still have relatively low data consumption, but many devices (e.g. Android and WebOS phones) have grown into adults, with adult sized appetites (and some devices, e.g. the Evo, eat like a teenaged boy). Implementing differentiated pricing based on the characteristics that drive how much customers are likely to consume is a simple necessity for staying in business.

Although no one has asked it yet, I’m sure the question will come, so let me address it now. “Does this mean that folks on legacy plans can now pay an extra $10 and upgrade to a smartphone?” Knowing the question would come, I had the opportunity to ask our VP of Pricing that question, and unfortunately, the answer was “no.” Sorry.

Update: There have been many questions via comments and e-mail about whether this means that the Evo and Epic on SERO now are included in SERO Premium without the additional Premium Data fee. The answer is no - there’s still an additional $10 charge for the Evo and Epic. In my post above, I was careful to say “for most smartphones”. For our current plans, to keep things simple, for now we only have one level of “premium” - which is inclusive of all smartphones, even though the very high end smartphones (Evo and Epic) consume much more data and drive much more cost onto our network. The SERO plans are priced so low that we can’t afford that simplicity, so we need to maintain the two tiers - SERO Premium and the Premium Data fee for the Evo and Epic. The concepts are exactly the same, but the economics are different, causing slightly different execution.