The average price of cellular telephone services has been decreasing at an estimated average annual rate of 1.7% during the three years to 2016. Price declines are largely the result of a saturated market that has led to intense price-based competition among service providers. A key strategy implemented by carriers to retain and win business from other carriers in the past three years has been to cut their service prices slowly, with little volatility. Falling prices and low volatility have benefited buyers by enhancing their ability to accurately budget for purchases with little risk of drastic price swings.
Vendors of cellular telephone services have been experiencing strong demand due to a rise in mobile device capabilities. Mobile device capabilities have been improving substantially, pushing demand upward. This trend has led to the growing popularity of smartphones and multifunctional conventional cellular telephones with internet and other capabilities, which has contributed greatly to increasing demand for cellular telephone services. Rising demand has been preventing carriers from decreasing service prices at a faster rate.
Despite strong demand, several factors have given way to an overall decrease in service prices. Cellular telephone services are commoditized, and competition is mostly price-based. The largest service providers have been gaining significant economies of scale by acquiring smaller companies. With greater economies of scale, providers can reduce the cost of delivering access to cellular telephone services. In turn, providers have been able to reduce service prices.
Providers also face a growing availability of substitutes. Commercial businesses are increasingly using the internet for voice communication, rather than traditional cellular services. Internet-based voice communication services are price-competitive compared with cellular telephone services. Many cellular service providers have been pressured to lower their prices to remain competitive, benefiting buyers. As such, buyers have been able to take their time evaluating providers without rising prices affecting their purchasing decisions. Buyers can cut costs even further by waiting for prices to fall during the next three years.
The average price of cellular telephone services is forecast to continue falling at an average annual rate of 1.0% during the three years to 2019. Despite the continued drop in prices, demand for market services is expected to continue growing steadily as the economy improves. The percentage of services conducted online is projected to continue increasing as buyers place greater value on online shopping; similarly, the number of mobile internet connections is expected to rise. These trends are anticipated to drive demand for cellular telephone services up further. Likewise, corporate profit is forecast to rise, providing businesses with the financial resources to buy mobile devices for their employees and provide cellular connectivity. With heightened demand, providers will make the necessary infrastructure upgrades to maintain call clarity and reliability. Although these investments will raise short-term costs for providers, they will bring down the cost of providing cellular telephone services in the long run. Providers will then pass on these cost savings to buyers in the form of lower monthly rates.
Moreover, fierce price competition among the top vendors will drive down cellular telephone service prices as providers seek to draw market share from their competitors. Although market share concentration is high, price competition is expected to remain high. Operators are scrambling to build larger subscriber bases, which is critical to developing greater economies of scale and enabling a carrier to offer lower prices and still achieve high profit.
Price volatility is forecast to remain low, facilitating easier budgeting and price comparisons among providers. Additionally, buyers can take further action to lower the total cost of ownership. Providers tend to give lower rates to buyers that sign long-term service contracts. Buyers can also discuss package deals whereby additional services or discounted mobile devices are included with the purchase of cellular telephone services.