Tuesday, May 03, 2005

Race to zero

Race to zero

Here's validation of one central strategic pricing principle at work in voice - do anything to keep customers happy, or just to keep them, period. Swisscom, hot on the heels of its flat rate data announcement last week, has today voluntarily cut mobile termination rates by 40%, and also introduced a new subscription tariff offering calls of up to one hour for a flat CHF0.50 (EUR0.32) for the duration of the call - in line with fixed line pricing.

I like the fact that the frank press release cites as motivations pressure from enterprise customers, as well as an observed decline in usage - i.e., consumers know when they're getting shafted and will vote with their feet - at least this company has grasped consumer sentiment. However, this is the sort of cut that hits a mobile company where it lives. Note the reference at the end of the press release to full year revenue and EBITDA impacts from the termination cut of a maximum of CHF165m - a tacit admission that termination is a 100% margin business. In any event, CHF165m off the EBITDA line equates to 8.4% of 2004 Mobile unit EBITDA, and that's only for six months. Annualized, we're talking double that level.
Permalink posted by James Enck : 8:24 AM

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