AT&T Wireless Case Essay

1. 10 points Describe the damage demeanour in the radio intentness. What be the implications of this embody behavior for make up-volume-profit (CVP) kindreds?Cost behavior is how a callers address limiting prone a swop in that political partys activities. Variable be ar personifys that change proportionately with the changes in a keep companys activities. In contrast, the addresss that do non change with a change in a companys activities atomic number 18 fill outn as mend equals. In the case of AT&T, live atomic number 18 focuse primarily into the fixed category. This elbow room that as the companys activities shift, its cost remain relatively unchanged. This combination of lavishly fixed costs and low cost varying costs gives AT&T and the rest of the industriousness a prominent fare of in operation(p) leverage. The ut well-nigh operating leverage of AT&T bureau that the company utilizes a risqueer venture strategy which take aways to higher profits as volumes ontogenesis. Essentially, as long as AT&T maintains a volume that covers at least its fixed costs, any surplus volume translates into profit. This works both shipway however, if volume decreases below the threshold for coating fixed costs then either decrease in volume yields proportionately equal releasees. According to the case, there is piffling cost associated with schoolbook messaging. The case states that school school text edition messaging has an incredibly low changeable cost, estimated at tho a a few(prenominal) cents per text. So basically, once AT&T has covered the cost of the required foot to facilitate text cores, any revenue enhancements garnered from text heart and soul and virtually pure profit.2. 5 points What are the key cost drivers? Can a cost driver be utilize to continually raise determines?A cost driver is the root cause of wherefore a cost occurs. For AT&T and the wireless industry there are several cost drivers. The most axiomatic ones in this case would be the public figure of texts sent per minute and the number of customers hairgripd by the carrier. However, there are many more. These accommodate the number of cell towers in the celestial sphere and the amount of database remembering adopted for handle the depicted objects. In addition, individual cell telephony forges and how many bends that are currently handled by a carrier in a given area are cost drivers. The primary cost driver used for the purpose of determining costs in this case is the amount of texts per minute.In this case, with its high fixed costs and low variable costs, any given change in volume leave behind have wee effect on costs. So, for AT&T, the cost drivers are unlikely to raise harms. However, this is non the case for all industries. If a company has high variable prices and low fixed prices we would expect the opposite.3. 15 points What does it cost AT&T to send a text message?Consider costs of the chann el, billing cost, repositing cost base on this cost, what is AT&Ts profit margin as a percentage of its short message religious service (SMS) text messaging business? Consider per-use determine and package pricingThe case states that the honest cost per voice minute is $0.07. From this the case determines that the alike amount of texts that can be sent, given the data transmission rates, is eighty-one. Thus the cost per text can be cipher as$0.07 / 81 = $0.0008641 per textThis, however, is non the total cost of a text. We moldiness also factor in the costs of billing, databases, and storage. The case estimates the cost of billing at twice that of the wireless costs. Therefore we fancy the cost of billing as$0.0008641 x 2 = $0.0017283 per textDatabase costs are estimated to be $10 million and AT&T is expected to carry 1% of the 3.5 trillion in world relations. cunning this we calculate the cost of storage as$10 million / ( 3.5 trillion x .01) = $10 million / 35 zillion = $ .0002857per textThe cost of storage is take for granted to be negligible in the case. However, I felt that it would still be raise to calculate the cost. The case states the cost of storage to be $1,000 per terabyte and that worldwide traffic requires 1,343 terabytes of storage. Given that AT&T carries only 1% of the traffic storage costs can be calculated as($1,000 x (1343 Tb x .01) / 35 billion = $13,430 / 35 billion = $0.0000003837The have cost of direct a text is thus$0.0008641 + $0.0017283 + $0.0002857 + $0.0000003737 = $0.002878To calculate the profit margin, we simply divide gross profit by total revenue. We will take into work out the profit margins for three of AT&Ts data plans. The per message plan which charge $0.20 per text, the $5.00 for 200 messages plan, and the $15 for 1500 messages plan.Per message plan ($0.20 $0.002878) / $0.20 = 98.56%$5 plan (($5.00 / 200) $0.002878) / ($5.00 / 200) = 88.49% $15 plan (($15.00 / 1500) $0.002878) / ($15.00 / 1500) = 71.22% 4. 5 points How strong a relationship should exist between the price supercharged to a customer for a well or service and the cost of providing that nice or service? Explain.It depends largely on the profit goals of any given company and can vary wildly depending on a number of factors such as whether a company is nonprofit or not. In the case of AT&T, the price should at least cover the cost of the product in order for the company to break even. Any amount greater than that will translate into profits. AT&T should price their products based on the put up and take of the given products. For text messaging, the demand is massive and AT&T gauges their prices accordingly. However, I feel that a degree of worship should be taken into account. Ik instanter that in the business world worship is generally ignored in look to of profits. But with text messaging, they are metaphorically printing money for themselves. The cost of sending a text message is small compared to what they charge their customers. The sad truth is that as long as we remain spontaneous to pay their price for the service they will continue to charge it.5. 5 points Why is the price that AT&T charges to transmit a special K of data via text message so much higher than the price charged to transmit a kilobyte of data via a Smartphone?The price of text messaging is higher than simply transmit data by smartphone largely because of tally and demand. The wireless industry prices their products based on demand. Currently, the demand for text messaging is high and still growing. Because of this prices remain high. Perhaps if the average consumer was more aware of the cost of texting this would change their preferences and cause the price to ultimately drop. Texts are not the only source of revenue for the wireless industry. For example, the industry also experiences revenues from gross revenue of devices such as cell phones. The industry prices their devices in order to compete with others in the industry and this leads to low prices in the device market. The revenue from texts is used to offset the loss of potential revenues in the device market.6. 10 points What should the attention of wireless menages seek to do now?Wireless firms should seek to improve their foundation to increase the capacity and efficiency of their networks. This would award the firms to handle a larger amount of data and improved rates. This would, in turn, increase the amount of customers that the firms could service and would increase the firms revenues. In the case of the wireless industry, an increase in revenues would likely lead to proportionately large increases in profits. The most efficient ways to improve the wireless infrastructure is to add additional towers and storage capabilities. According to the PCIA, revisions in networking policies would also inspection and repair to achieve this goal. Byallowing the wireless industry access to existing financial support structures such as towers, buildings, water tanks, and utility poles, the need for constructing expensive cell towers could be eliminated. In fact, the new generation of antenna systems no longer require the construction of one-time(a) cell towers and are designed to be attached to the previously mentioned pre-existing support structures.