Which will be the last telecom standing? We may know sooner than you think.
Yesterday, at the CTIA trade show, Sprint Nextel's (NYSE: S) chief executive Dan Hesse said his company would stop charging wireless subscribers by the minute and start charging by the gigabyte. The change won't happen immediately, but in two years, The Wall Street Journal reports Hesse as saying.
As if the timing matters. With this change, Sprint is pretty much admitting that traditional telephony is dead.
Credit Hesse for recognizing the obvious, even if he's doing so long after at least one of his peers. Last year, AT&T (NYSE: T) called the old Public Switched Telephone Network a relic in a filing with the Federal Communications Commission. In February, a spokesperson explained the company's support of Skype on Apple's (Nasdaq: AAPL) iPhone by calling it a consequence of courting data users. Telephony has become secondary to AT&T; Hesse is singing a similar tune.
But there are implications to taking dynamite to the pay-for-minutes model that has sustained wireless providers such as Sprint, AT&T, Verizon (NYSE: VZ), and Deutsche Telekom's (NYSE: DT) T-Mobile for years. Eliminating the buffer created by overcharging for unused minutes would surely lead to lower margins.
Hesse, for his part, seems to be characterizing this as an evolutionary move that aligns his company more closely with partner Clearwire (Nasdaq: CLWR). Together, they'll design plans for high-speed access to a national 4G WiMAX network capable of carrying voice, video, and data with equal velocity. Smartphones such as Palm's (Nasdaq: PALM) Pre ensure that data will account for a large portion of the traffic, which in turn makes per-gigabyte-consumed pricing seem more appropriate.
And it may be. Trouble is, once today's opaque wireless pricing schemes go away, replaced by one-size fits all data plans, differentiators disappear. Cost becomes king, and a race to the bottom is all that's left. That's why I'm staying short in all the telcos in my Motley Fool CAPS portfolio.
Is Sprint right to switch to per-gigabyte pricing? Discuss in the comments box below.
