Cingular Wireless

1
Cingular Wireless
Presented by
Kristen Baressi
Matt Tressler
Breanna Rose
2
Table of Contents

• Kristen
• History/Background
• Factors of Production
• Opportunity Costs
• Supply and Demand
• Matt
• Elasticity
  
• Production and Costs
• Normal Goods/Substitution Effect
• Horizontal Merger
• Breanna
• Price Discrimination
• Is Cingular a monopoly?
• Oligopoly
• Conclusion

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History/Background
Second largest wireless company in the United
States Ownership SBC (60 percent) BellSouth
(40 percent) Revenues Last year Cingulars
annual revenue was 15.5 billion
4

• Reach
• 23 million across the United States
• Only wireless carrier to provide rollover minutes
• Cingular Products
• Digital Wireless VoiceAnalog Wireless
  VoiceWireless Data- GPRS (General Packet Radio
  Service)- Interactive Messaging- Corporate
  E-mail Access- Short Messaging- Wireless
  Internet/ WAP

5
Factors of Production

• Land
• Labor
• Human Capital
• Physical Capital

6

• Land is the physical space on which production
  takes place
• Also includes all the natural resources found
  under it or on it.
• Cingulars Land Has locations in 30 states and
  Puerto Rico

7

• Labor
• Time humans spend producing goods and services
• Cingulars Labor
• Sales, customer service, network technology,
  information technology, corporate support,
  marketing, accounting/finance, supply chain
  management

8

• Physical Capital
• Long lasting tools used in producing goods and
  services
• Human Capital

9
Opportunity Cost

• What is given up when taking an action or making
  a choice

10
Cingulars Opportunity Cost

• RIM 957 Wireless Handheld with PIM Synch Kit

Sony Ericsson T62u
11
Supply and Demand

• Demand
• Amount of an item that people are willing and
  able to buy at a certain price

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Ceteris Paribus Factors for Demand

• Income
• Price of related goods
• Taste
• Number of consumers
• Expectations of consumers

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Demand
Price
Increase In Demand
Decrease In demand
D
Quantity
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Supply
Amounts of an item that sellers are willing and
able to sell at various prices
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Ceteris Paribus Factors of Supply
Input Prices Prices of Alternative
goods Technology Number of suppliers Expectations
of sellers
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Supply
S
Price
Decrease in Supply
Increase in Supply
Quantity
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Elasticity

• Elastic Change in price causes large change in
  quantity demanded.
• Cingulars demand is very price elastic.
• If Cingular raises the price of a phone package,
  customers can go to a competitor.

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Elasticity (cont.)

• Many close substitutes
• Verizon, Sprint, Nextel, T-Mobile
• Cingular price ? customers leave.
• Cingular ? Verizon
• Motorala T720 ? Motorala T730
• Two year ? Two year
• Contract 67.99 Contract 39.99

http//www.verizonwireless.com/b2c/store/controlle
r?itemphoneFirstactionviewPhoneDetailselectedP
honeId1537
http//onlinestore.cingular.com/webapp/wcs/stores/
servlet/ES_PROD_PHONE_DETAILS.jsp?phoneid135627s
toreId14751catalogId14751langId-1storeAlias
phlbmisvcAreaIdPHLsubOrderId1isPostpaidtrue
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Elasticity (cont.)

• Consumer must see product as close substitute.
• If one company offers much better service,
  another is not a close substitute.
• 600 anytime minutes ? 600 anytime minutes
• 5,000 night and weekend ? Unlimited night and
  weekend
• 0.40 per additional minute ? 0.40 per
  additional minute
• Price 49.99 ? 39.99

http//www.cingular.com/refresh/common/estore_zipc
ode?selinfoRatePlans
http//www.t-mobile.com/plans/NationalRatePlanDeta
ils.asp?PlanID3222
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Production Costs

• ? Explicit money paid for inputs.
• Examples
• Salaries
• Rent (stores in malls)
• Website maintenance
• Tower maintenance
• Service costs

• Implicit opportunity costs that firm could have
  earned.
• Examples
• Foregone rent
• Use technology for other products, such as
  computers

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Short Run Production Costs

• Fixed Costs costs that remain constant
• Ex Equipment maintenance (towers), Website
  maintenance
• Variable Costs costs that vary over time
• Ex Employees wages and salaries, Advertising
  (Cingular all-time NCAA tournament team)

22
Long Run Production Costs

• All of a firms inputs can be varied
• Cingular can build new towers
• Cingular can build permanent stores
• Cingular can design a new website

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Profit

• Accounting Proft when TR Accounting
  Costs
• In 2003 Cingular
• TR 15.5 billion
• Accounting Costs 13.2 billion
• Accounting Profit 2.3 billion

http//www.cingular.com/about/new_leadership.pdf
http//www.all-cellular-phones.com/images/nokia-ce
ll-phone.jpg
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Profit (cont.)

• Economic Profit considers implicit costs.
• Cingular accounting profit of 2.3 billion.
• Implicit costs
• Other uses of Technology
• Time
• Foregone Income
• TR Implicit and Explicit Costs

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Merger

• February 17, 2004, Cingular announced acquisition
  of ATT Wireless.
• Horizontal merger across same distribution
  network.
• Expands Cingular to 97 of top 100 markets in U.S.
• Gives Cingular very large share of market.

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Merger

• Expands revenues and expenses
• Cingular (billions) ? ATT (billions)
• ?TR 15.5 ?TR 16.7
• ?Explicit 13.2 ?Explicit 15.5
• ?Profit 2.3 ?Profit 1.2

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Normal Good

• Price ?, Quantity Demanded ?
• Cell phone prices ?
• U.S. cellphones
• 1990 5 million http//hypertextbook.com/facts/200
  2/BogusiaGrzywac.shtml
• 1995 33 million http//hypertextbook.com/facts/20
  02/BogusiaGrzywac.shtml
• 2003 134 million http//www.modbee.com/24hour/o
  pinions/story/745747p- 5411879c.html

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Substitution Effect

• Price of good ?, consumer substitutes good in
  place of other goods.
• Cell phones price ?, QD ?
• Payphone price (constant or ?), QD ?

http//www.unitedlocations.com/images/payphone.jpg
http//images.usatoday.com/life/cyber/_photos/2003
/ces-cell-phone-story.jpg
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Income

• Income ?, QD of normal good ?.
• QD cell phones ?.

http//www.jrn.columbia.edu/studentwork/cns/2002-0
7-07/images/cell911.jpg
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Perfectly Competitive Market

• Homogenous product
• Easy Entrance and Exit
• Large Number of Buyers and Sellers
• Perfect Knowledge of Product

• ? YES
• ? NO
• ? YES
• ? NO

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Monopoly

• Heterogeneous product
• Barriers to Entry
• Only One Seller

• NO
• YES
• NO

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Oligopoly

• Few firms
• Dependent on each other
• Economies of Scale (Produce at cost so low that
  few others can compete)
• Non-price competition

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Oligopoly

•   Subscribers at end of fourth quarter of 2003.
•              Cingular  Verizon    ATT  
  Sprint   Nextel  T-Mobile Subscribers    
  24.0     37.5      22.0    17.5    12.9     
  13.1 (in millions)
• With acquisition of ATT, Cingular now has 46
  million subscribers. (a very large market share)
• Large firms decisions affect each other

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Price Discrimination

• Some degree of monopoly power.
• Determine different elasticities of demand.
• Separate markets by elasticity.
• Prevent resale.

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Price Discrimination
? Nokia 6340i ? 2 year contract ? Exact
same features

• Reading, PA ? Washington D.C.
• Regular price ? Regular price
• 19.99 39.99

http//onlinestore.cingular.com/webapp/wcs/stores/
servlet/ES_PROD_PHONE_DETAILS.jsp?phoneid149493s
toreId11351catalogId11351langId-1storeAlias
waswassvcAreaIdSBCsubOrderId1isPostpaidtrue
http//onlinestore.cingular.com/webapp/wcs/stores/
servlet/ES_PROD_PHONE_DETAILS.jsp?phoneid136069s
toreId14851catalogId14851langId-1storeAlias
hlybmisvcAreaIdREAsubOrderId1isPostpaidtrue
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Price Discrimination
? Sony Ericsson T226 ? 2 year contract ? Wireless
Internet, downloadable games, etc.

• ? Long Island, New York
• ? Online price ? Regular Price 29.99
  39.99

http//onlinestore.cingular.com/webapp/wcs/stores/
servlet/ES_PROD_PHONE_DETAILS.jsp?phoneid252561s
toreId14701catalogId14701langId-1storeAlias
nycbmisvcAreaIdLGIsubOrderId1isPostpaidtrue
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What we have Learned

• ? Oligopoly
• ? Price Discrimination
• ? Elasticity
• ? Profit
• Supply and Demand
• Factors of Production
• Opportunity Cost

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Any questions?