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A new twist in the cell phone price wars
Alltel to offer subscribers unlimited free calls to and from up to 10 people regardless of what network they're on. The catch: You have to have a $59.99 monthly plan.
NEW YORK (CNNMoney.com) - Alltel, the nation's fifth largest wireless phone company, has fired the latest volley in the cell phone price wars.
The company is announcing a new plan for customers on Thursday called My Circle that will allow people to make and get unlimited calls for free from up to ten people regardless of which phone company the other person is using.
Customers who have at least a $59.99 monthly plan with Alltel (Research) will be able to list ten phone numbers (wireless or land line) that they want to be part of their "circle." Alltel group president of operations Kevin Beebe said that customers can change the numbers in the plan as often as they like through the company's My Circle web site.
Most major cell phone companies already have calling plans that allow users to make unlimited calls to people within that same customer's network, i.e. if you are Verizon Wireless subscriber, all calls to and from other Verizon (Research) users are free.
But Beebe said Alltel's new plan is the first time one of the top wireless companies is allowing users to get free calls from customers who are subscribers of other cell phone companies.
To further hammer home this point, Alltel's My Circle web site has a banner featuring a likeness of actress and T-Mobile spokeswoman Catherine Zeta-Jones standing next to look-alikes of the Verizon Wireless "Can you hear me now?" guy, the old Sprint Nextel's (Research) agent pitchman character with the black trench coat and the Cingular orange asterisk logo thingie.
"As mobile to mobile plans have developed, we've found frustration from customers about only being able to get free minutes for people using the same carrier," said Beebe. "That led us to investigate how we could offer a service that gives the customer more control."
Competition heats up
Cell phone companies are aggressively fighting to hold on to existing customers and attract new ones at a time when mergers are reshaping the industry. AT&T (Research), one of the co-owners of cell phone market leader Cingular, announced a deal last month to buy its joint venture partner in Cingular, BellSouth (Research).
That deal comes on the heels of the merger between Sprint and Nextel, which closed last year.
"Competition continues to be intense in wireless. This is yet another example of that," said Kevin Roe, an analyst with Roe Equity Research, an independent telecom research firm.
Alltel, based in Little Rock, Ark., has also grown rapidly throughout the past few years thanks to acquisitions. It purchased the wireless assets of CenturyTel in 2002 and followed up that deal with last year's acquisition of Western Wireless. The company now has more than 10 million subscribers.
With that in mind, one wireless industry analyst predicted that other cell phone companies may wind up soon launching calling plans similar to Alltel's.
"Alltel is a force to be reckoned with. They are not a little Podunk carrier," said Andrew Seybold, president of Outlook 4Mobility, a wireless consulting firm based in Santa Barbara, Calif. "Now we're going to see if the other carriers are going to come up with something else. What's next?"
But Roe said that since Alltel still trails the big four wireless firms by a wide margin (T-Mobile USA, owned by Deutsche Telekom (Research), is the fourth largest with more than 20 million customers, for example) he isn't so sure that the top four carriers will need to directly respond to Alltel's new offering. He added that because a user needs to pay $59.99 a month to qualify for a plan, many customers, including the lucrative younger market, may not be inclined to sign up for such a plan.
Rather, Roe thinks that My Circle could wind up being a smart way for Alltel to hold onto existing customers and get them to convert to a higher monthly plan in order to qualify for the free unlimited calls.
"At the end of the day, it costs a lot of money to add a new customer. If you could get an existing user to stay and pay more, that's a benefit," Roe said.
Alltel's Beebe admitted as much. He said that Alltel wireless users, on average, spend about $51 per month. So if the company is able to successfully convince customers on lower-rate plans to migrate over to the $59.99 a month plan, that's a win for Alltel, he said.
Seybold agreed that it may be more important for Alltel to merely hold onto current customers but he does think that subscribers of other networks might be intrigued by Alltel's new plan as well.
"It's kind of cool. Everyone offers free in-calling or friends and family lists on their own network." said Seybold, who is not an Alltel customer. "The thing that I like is that I can go and change the names on my list anytime I want. The object here is to increase customer loyalty."
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