At&T Wireless: Text Messaging Essay

1. Describe the represent doings in the tuner industry. What atomic number 18 the implications of this personify behavior for exist-volume-profit (CVP) kinds?The term cost behavior is used to let out whether a cost changes as output changes. In this case the be are tightly shielded. In order to describe the cost behavior of the industry, we buzz off to study the process that results in cost incurrence. Based on the information in the AT&T case, the industry features a gritty proportion of fixed cost in relation to acquiring spectrum and grammatical construction a network. Variable be are relatively modest and, in the case of text edition edition kernels, are very low. The cost structure in the wireless industry is dominated by fixed cost, so the role security deposit ratio is spicy. The proud school fixed be and large percent margin ratio result in a relatively high percentage increase in profit. The greater the proportion of fixed be in a firms cost stru cture, the greater the jolt on profit will be from a given percentage change in sales.The wireless industry has high operating leverage, because of high fixed costs and low variable costs. Therefore, the industry has a high ability to generate an increase in net income when sales gross increases. Text messages did not use any extra spectrum once the carrier wave had paid the cost of the underlying infrastructure and storage equipment. Any revenue received by the provider on incremental text message usage is intimately pure profit. So, we place arrogate that, the cost does not change as the output changes. As far as I understand, the costs are incurred when the message is actually sent, and all these cost are very low.2. What are the bring up cost drivers? Can a cost driver be used to continually raise prices? live drivers1. yield of text messages per minute2. Number of cell towers per area cover3. Number of entropybases needed for a certain volume of messages 4.Number of customers5. Number of cell phone plans6. Number of terabytes7. Number of devicesThe choice of the cost driver in this industry is not obvious, and the cost behavior pattern feces depend on the cost driver selected. In this case the key cost driver is the number of text messages sent/received per minute.Yes and zero(prenominal) It depends on the cost behavior of the business. If the business has high variable costs and low fixed costs then the organization is more(prenominal) established by a change in the volume. If the business, like in AT&Ts case, has a high rate of fixed costs with stripped-down variable costs (we assume that they are at the low end of the range of volume per fixed costs because their profit margin is high) then a change in volume will hasten little to no effect on the actual costs incurred.3. What does it cost AT&T to send a text message?Consider costs of the channel, billing cost, storage cost Based on this cost, what is AT&Ts profit margin as a percentag e of its text communicate business? Consider per-use pricing and package pricingHow strong a relationship should exist?In PlanChannel cost$.0008641 (.07/81) = using representative messages as a reference which cost $.07 cents a minute. There are 81 text messages/minute addted per channel.Billing cost .0017283 (.0008641 x 2) = assume billing costs are twice as much as wireless costsData base cost.0002857 (10M/35B) = AT&T would entertain approximately 1% of worldwide text traffic of 3.5 trillion (35B) in their database which costs 10 million dollars Storage cost .0000003837 (13,430/35B) = Worldwide text storage is 1,343 terabytes. AT&T would carry 1% of this storage =13.43 terabytes. comprise of storage is $1,000 x 13.43 = $13,430. To get the per text cost divide this by 35B. Total cost per text$.002878 take in Profit Margin = Gross Profit divided by total revenue $.20 per messageplan of $5 for cc messagesplan of $15 for 1500 messages (.20 .00278)/.20(.025-.002878)/.025 (.01 .002878)/.01 =99%= 88%= 71%4. How strong a relationship should exist between the prices charged to a customer for a unafraid or usefulness and the cost of providing that frank or service?We cerebrate that companies should calculate their break-even point for their goods and services and to charge the prices according to that figure. This way, they brush off enlighten sure that their price covers their expenses. In case of AT&Ts text messaging they are charging much more than the cost. But because at that place are only four national carriers in United States and they simplicity 90 percent of the market, and text messaging had become widely popular, they can afford high prices. They are considering the demand of the service and pricing the reaping according to demand and supply.5. Why is the price that AT&T charges to transmit a kilobyte of data via text message so much higher than the price charged to transmit a kilobyte of data via a Smartphone?The fastest growing wireless industry is text messaging. This also reflects the earlier comment that demand for messaging far exceeds supply, therefore effort prices up. Even though it costs less to transmit a text message than data, it is still meetn as a very low cost to the average customer. The customer feels like they are getting a good deal because they are using the text messaging more than the data messaging. Part of the wireless industries revenue is from the sale of the devices. Even the cheapest cell phones defend the capability to send text messages.Since the company is not making as much of a profit off of the device (cell phone), they are making up the difference in charging more for the text messages. In addition, since voicemessaging is beingness replaced by data messaging, both text and email, almost all cell phone chains are developing their consume version of an IPhone or smart phone. To compete with these other chains, AT&T must charge the lowest price possible for their data to temp t customers to buy their products over the competitors.6. As we move to a service economy, can we expect to have more or fewer businesses with cost behaviors quasi(prenominal) to those in the text messaging sector? Explain.I would assume we would see more businesses with cost behaviors similar to the text messaging sector. The reason being is the service industry tends to have more fixed costs that presumet increase linearly with the increase in service. The fixed costs tend to be step-fixed costs, whereas they can maintain services within a certain range up to a point in which they have to increase the fixed costs. The variable costs tend to be minimal since they often dont have the manufacturing costs of aspire materials and direct labor.After a service industry covers the basic operations, less coin is needed as sales rise. Once the fixed costs are paid, the expense of processing additional sales is so little that the internet will grow faster than the revenues. The preceden ce has already been set in multiple service organizations, particularly internet companies. They have shown that once you reach out the hurdle of covering your basic fixed costs, the increased volume of service is very profitable.7. What should management of wireless firms seek to do now?AT&T should invest in improving the companys wireless broadband coverage and its performance. They can improve network coverage by adding cell towers, laying faster fiber-optic cabling, adding capacity to cell sites and upgrading present-day(prenominal) cell sites to improve internet speeds. By enhancing the network, they can carry a larger volume of data traffic. This will allow them to accommodate more customers and therefore increase their profits.