'At&T Wireless: Text Messaging Essay\r'

'1. Describe the represent look in the tuner industry. What ar the implications of this run into up deportment for greet- stack- pelf (CVP) relationships?\r\nThe term apostrophize carriage is used to see whether a make it changes as railroad siding changes. In this case the make up argon tightly shielded. In order to describe the approach behavior of the industry, we pay back to study the process that results in cost incurrence. ground on the information in the AT& deoxyadenosine monophosphate;T case, the industry features a luxuriously balance of resolved be in relation to getting spectrum and building a network. Variable cost atomic number 18 comparatively hapless and, in the case of school text editionual matterbook edition marrows, argon genuinely low. The cost structure in the wireless industry is dominated by frosty be, so the contribution gross profit ratio is high. The high frosty cost and large contribution margin ratio result in a relativ ely high percentage increase in profit. The greater the proportion of contumacious costs in a firm’s cost structure, the greater the carry on on profit go forth be from a given percentage change in sales.\r\nThe wireless industry has high operating leverage, because of high frozen costs and low variable costs. in that locationfore, the industry has a high ability to generate an increase in net income when sales revenue enhancement increases. â€Å"Text essences did not use any extra spectrum †once the letter carrier had paid the cost of the underlying infrastructure and wargonhousing equipment. Any revenue original by the provider on incremental text message utilisation is around pure profit”. So, we can relieve that, the cost does not change as the output changes. As further as I understand, the costs are incurred when the message is actually sent, and all these cost are very low.\r\n2. What are the key cost drivers? Can a cost driver be used to continually raise scathes?\r\nCost drivers\r\n1. enumerate of text messages per minute\r\n2. Number of cell towers per subject covered\r\n3. Number of entropy primarys mandatory for a sure volume of messages 4.\r\nNumber of customers\r\n5. Number of cell auditory sensation plans\r\n6. Number of terabytes\r\n7. Number of devices\r\nThe choice of the cost driver in this industry is not obvious, and the cost behavior pattern can depend on the cost driver selected. In this case the key cost driver is the number of text messages sent/received per minute.\r\nYes and No. It depends on the cost behavior of the line of merchandise. If the business has high variable costs and low fixed costs thitherfore the organization is more effect by a change in the volume. If the business, exchangeable in AT& adenine;T’s case, has a high rate of fixed costs with minimum variable costs (we assume that they are at the low end of the range of volume per fixed costs because their profit ma rgin is high) then a change in volume will energise little to no effect on the actual costs incurred.\r\n3. What does it cost AT&T to send a text message?[Consider costs of the channel, rush cost, transshipment center cost] Based on this cost, what is AT&T’s profit margin as a percentage of its text pass business? [Consider per-use price and package pricing]How impregnable a relationship should exist?\r\nIn figure\r\nChannel cost$.0008641 (.07/81) = using voice messages as a reference which cost $.07 cents a minute. There are 81 text messages/minute catching per channel.\r\nBilling cost .0017283 (.0008641 x 2) = assume billing costs are twice as more as wireless costs\r\nData base cost.0002857 (10M/35B) = AT&T would carry roughly 1% of worldwide text traffic of 3.5 million (35B) in their database which costs ~ 10 million dollars store cost .0000003837 (13,430/35B) = Worldwide text storage is 1,343 terabytes. AT&T would carry 1% of this storage = 13. 43 terabytes. Cost 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\r\n glaring Profit Margin = Gross Profit divided by total revenue $.20 per messageplan of $5 for 200 messagesplan of $15 for 1500 messages (.20 †.00278)/.20(.025-.002878)/.025 (.01 †.002878)/.01 =99%= 88%= 71%\r\n4. How strong a relationship should exist between the prices charged to a customer for a close or divine service and the cost of providing that good or service?\r\nWe think that companies should calculate their break-even caput for their goods and services and to charge the prices according to that figure. This way, they can make sure that their price covers their expenses. In case of AT&T’s text messaging they are charging much(prenominal) more than the cost. But because there are only four national carriers in United States and they control 90 percent of the market, and text messaging had become widely popular, they ca n reach high prices. They are considering the demand of the service and pricing the product according to demand and supply.\r\n5. Why is the price that AT&T charges to take a kilobyte of data via text message so much higher than the price charged to transmit a kilobyte of data via a Smartphone?\r\nThe speedy souring wireless industry is text messaging. This also reflects the earlier comment that demand for messaging far exceeds supply, therefore driving prices up. til today though it costs less to transmit a text message than data, it is still seen 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 have the capability to send text messages.\r\nSince the company is not making as much of a profit off of the device (cell phone), they are making up the differ ence in charging more for the text messages. In addition, since voice messaging is cosmos replaced by data messaging, both text and email, almost all cell phone chains are developing their own version of an IPhone or ingenious phone. To compete with these other chains, AT&T must charge the lowest price workable for their data to entice customers to buy their products over the competitors.\r\n6. As we move to a service economy, can we dribble to have more or fewer businesses with cost behaviors similar to those in the text messaging vault of heaven? Explain.\r\nI would assume we would see more businesses with cost behaviors similar to the text messaging sector. The reason being is the service industry leads to have more fixed costs that don’t increase linearly with the increase in service. The fixed costs tend to be step-fixed costs, whereas they can maintain services inside a certain range up to a point in which they have to increase the fixed costs. The variable c osts tend to be minimal since they often don’t have the manufacturing costs of direct materials and direct labor.\r\nAfter a service industry covers the canonic operations, less money is needed as sales rise. Once the fixed costs are paid, the expense of processing additional sales is so little that the profits will grow faster than the revenues. The precedence has already been set in multiple service organizations, particularly internet companies. They have shown that once you achieve the hurdle of covering your basic fixed costs, the increased volume of service is very profitable.\r\n7. What should management of wireless firms seek to do now?\r\nAT&T should invest in improving the company‘s wireless broadband reportage and its performance. They can ameliorate network coverage by adding cell towers, laying faster fiberoptic cabling, adding capacity to cell sites and upgrading current cell sites to improve internet speeds. By enhancing the network, they can carry a larger volume of data traffic. This will quit them to accommodate more customers and therefore increase their profits.\r\n'