Analyst Angle: Bye-bye unlimited data plans – the drivers, threats and opportunities

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The U.S mobile data services market is in the midst of a shake-up. In view of the explosive data usage that hero devices such as Apple Inc.’s iPhone have helped promote, carriers are beginning to move away from unlimited data plans in favor of a tiered model which recognizes the various requirements of customer sub-segments, with new energy given to targeting first-time mobile Internet users.
AT&T Mobility became the trend setter of sorts via its high-profile rejection of unlimited data plans last month redirecting its new users to its new data plans, the DataPlus 200 MB for $15 and the DataPro 2 GB for $25. While AT&T Mobility has been the first to devise this change, it will definitely not be the last.
The rise of app stores in conjunction with data centric devices will make it impossible for carriers to offer unlimited plans that clog up their networks. The move away from a one-size-fits-all data allocation towards a proliferated model allows carriers to future-proof their businesses from data hogs whilst simultaneously reaching out to a new, low-end demographic. This article picks out some of the drivers and accompanying threats and opportunities implicit in this movement.
Key drivers
1. Anticipating massive data waves; recognizing the futility of application bans:
As discussed, a key benefit of tiered data plans is the way in which they allow carriers to future-proof their plans for increased heavy-bandwidth usage (particularly streaming video, video calling and file sharing). Correspondingly, as tiered data allocations stretch to adapt to this new appetite, carriers will also be able to drop the habit of “banning” such applications in the terms and conditions of their existing, one-size-fits-all data plans. The move toward tiered data plans will allow carriers to relax their attitudes toward application bans. If users are willing to pay for the additional data required to access such services as video conferencing and legal file sharing, carriers can create a larger data tier option to accommodate this, and therefore support a business case for it in a way that inflexible, one-size-fits-all data plans could never allow.
2. A new tact; a stronger sales argument:
In replacing their one-size-fits-all mobile data plans with tiered alternatives, carriers are also able to articulate a new marketing vocabulary which not only provides pricing transparency assurance, but also gives users a real sense of where their usage profile sits in relation to the “average user.” AT&T Mobility provided the market with the first high-profile example of this kind of messaging with a set of typical data usage statistics designed to reassure new mobile Internet users of the unlikelihood that they would ever exceed the tiered data cap limitation and be exposed to additional charges. The argument is compelling, especially for new smartphone users who may have no clear idea of their mobile data requirements. Specifically, AT&T Mobility confirmed that 98% of its mobile Internet customers would have no need to buy into an additional data allowance, as the higher threshold plan, offering 2 GB per month, will satiate their data requirements. It is a stronger, more practical and user-centric marketing argument than the “unlimited” approach ever was.
Threats and solutions
1. User dilemma:
The U.S. mobile data audience is not very knowledgeable when it comes to data usage basics and as such might find it challenging (if not tiring) to keep track of usage leading to frustration and a potential customer service nightmare.
The rising number of app stores offering users apps at very reasonable rates which are not exactly bandwidth friendly only exacerbates the issue. While education is key, carriers also need to take proactive measures to help users make better decisions such as including the file size of a downloadable app in the description space and in the case of streaming apps, the amount of data consumed by the app in an hour (or whatever time duration is more suitable) should be visibly listed.
Specific indications and descriptions will help consumers better plan their usage and lead to higher satisfaction levels. Also, when a user is about to access a data centric app over the 3G network, the carrier should send an alert that the user can switch to the Wi-Fi network (if available) and potentially save “x” amount of data usage. A savings centric message from the carrier will always be appreciated. However, users should also be given the opportunity to opt out of this service if they wish.
2. Developer nightmare:
It was widely reported that AT&T Mobility’s move to tiered plans did not sit well with the developer community who felt that the change negatively impacted their revenue potential as users will now refrain from using their apps (especially data intensive ones ) on a frequent basis over fears of exhausting their data limit. On top of the daunting task of deciding which app stores to submit their apps to, developers now have to be more efficient in their app creation and think about the client/server architecture which might lead to increased costs.
To help counter that and to encourage as well as reward developers who modify or create new apps that are less bandwidth intensive, carriers should credit the app submission fee or increase their revenue share for qualified apps to encourage more developers to follow suit. This will also ensure that the app store remains an enticing place for the consumer and does not fall behind on quality.
Opportunities
As the European market is well ahead of the U.S mobile space in terms of tiered data plans, the latter can pick some valuable lessons to ensure a smooth transition. One common feature shared by several of the new, tiered plans refreshes in Europe is in the provision of bundled value-added services. The new A1 Multimedia Packages service concept in Austria, announced at the end of April, is one such example, with three options tiered according to data usage at 300 MB, 1 GB and 3 GB. The plans also provide inclusive benefits, such as free A1 handset insurance on all three tiers and three free MP3 singles per month and navigation (A1 Navi) on the mid-range plan. Inclusive content is also back on the radar and offers a great incentive to data centric users. Back in April, T-Mobile U.K. launched a high-profile promotion which awarded all new postpaid customers to the HTC Corp. Wildfire with two free film downloads from its VoDservice.
All this innovation looks set to create more differentiation in the mobile data space than ever seen before, but carriers will recognize this challenge as a competitive response minefield, as well as seeing the potential danger in commoditizing key services. In the good old days, devices sold the plans. As things take a 180 degree turn, carriers will need to give more competitive consideration to varying the inclusive services options to reach new sub-sectors, tiering the monthly data plan according to segment and establishing service differentiation.
Deepa Karthikeyan serves as a senior analyst for the Wireless Services, U.S. module at Current Analysis. In this capacity Karthikeyan is focused on wireless data in the U.S. markets. Coverage areas include messaging, access, content, multimedia, pricing and plan features. Karthikeyan’s duties also extend to wireless data trends including mobile social networking mobile advertising and location based services.
Prior to joining Current Analysis, Karthikeyan was an analyst with Kyocera W
ireless where she was supported product de
velopment and engineering in consumer test trials. Karthikeyan’s experience also included project management and marketing in healthcare and other consumer industries.
Karthikeyan holds a Bachelor degree in Business Management from Xavier’s Institute of Management in India and a Masters in Mass Communication from San Diego State University.