3 thoughts on “Voice, is still the king”

  1. If prices go down by half, but volume quadruples, revenue doubles. But if margins are less than 50%, and costs per minute stay flat when prices go down by half, margin goes negative. So you lose money on each minute, but make it up on volume.

    Now, most costs of carrying minutes on a network (wireless or wireline) are not straight marginal costs — instead, there are generally large fixed costs and significant step-function costs at specific capacity breakpoints. (The exception is intercarrier compensation, which is pretty much completely marginal cost per minute. But that’s a topic for another discussion.) So the magic is in pricing to capture incremental revenue from additional usage of existing capacity that drives no incremental cost. Hence unlimited off-peak usage (which is nothing more than an evolution of “evening rates” for long distance, for anyone old enough to remember when the cost of long distance calls mattered…).

    Now here’s a scary thought: Name another industry with high fixed costs, effectively zero incremental cost per additional unit carried up to a capacity threshold, resulting in sophisticated pricing models to maximize incremental revenue within the capacity threshold.

    Air travel.

    And how many profitable airlines are there?

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