An increased emphasis on unlimited high-speed cellular data by T-Mobile and Sprint places focus on Verizon in terms of a response
Recent moves by T-Mobile US and Sprint to broaden the appeal of “unlimited” high-speed data plans has shifted focus to how their larger rivals might respond.
Both AT&T Mobility and Verizon Wireless proceeded the changes by T-Mobile US and Sprint by rolling out options to eliminate overage charges for customers who exceed their allotment of high-speed data, though at the expense of network speeds. Those moves followed similar changes by the smaller carriers and basically set the domestic market’s four largest carriers on equal footing in tackling what has been a long-standing consumer pain point.
The moves by AT&T Mobility and Verizon Wireless were somewhat controversial in that at the same time they increased the price of data buckets, but in turn allowed for a larger amount of unthrottled data access. Those per-gigabyte pricing cuts were most prevalent on larger buckets, which in terms of average data usage for most consumers could be seen as equal to unlimited data usage.
In terms of allowing for unlimited high-speed data, only AT&T Mobility offers a similar option, which it launched earlier this year tied to customers also selecting one of its television services. The carrier recently noted it had signed up more than 5 million customers to the unlimited cellular data service, which it had previously stated typically generated larger average monthly revenue payments from those customers and lower churn.
But so far, AT&T Mobility has yet to expand the unlimited cellular data offer beyond its bundled packages.
Verizon Wireless remains the only nationwide carrier to currently not offer the option of unlimited high-speed wireless data to new customers. The carrier has stridently refused to re-enter that space, which the company stopped offering to new customers in 2011. The carrier has since slowly begun to raise prices on customers who have maintained those plans.
The carrier has instead gone with increasing the size of data buckets or providing extra amounts of data to customers tied to the carrier’s other service offerings, like its Go90 video platform.
Earlier this year, Verizon Communications CFO Fran Shammo went so far as to say unlimited cellular data “does not work in an LTE environment.” At the same time, Shammo said he thought the move by rivals toward unlimited cellular data were likely temporary and only being used to gain ground in the market.
“Look, this industry has always been competition comes in and out with promos,” Shammo explained. “That is just the nature of what we deal with on a quarterly-to-quarterly basis. A lot of the things that are out in the marketplace today are promos. These are not permanent pricing type things so you have to be careful how much you react to different competitor promotions and of course we run our own promotions. So the promotional activity will always be there and I don’t think it is more intense than it was, it is not like we are seeing what happened a couple of years ago where the entire industry was reset in pricing. I don’t see that. I just see this as business promotional activity to try to gain ground to get some maybe incremental net adds here and there.”
However, the recent moves place a stronger spotlight on how Verizon Wireless might react. Verizon Wireless and AT&T Mobility have traditionally mimicked each other in terms of rate plan changes, which again manifested itself in terms of the change in how they deal with overage.
Verizon Wireless could highlight the fact its rivals include language allowing for the slowing of network speeds for unlimited data customers should they exceed a predetermined amount of usage and during times of excessive network congestion. That qualification is somewhat nebulous, and thus would seem to be ripe for some sort of call-out from carriers that do not participate in the practice.
Of course, Verizon Wireless may have the least amount of need to move back into the unlimited data space as it continues to show strong, though slowing, customer growth and low churn results. The carrier also continues to lead its rivals in a number of “independent” network performance surveys, which allows the carrier to perhaps charge more for access in return for consumers having access to a stronger network.
Analysts have pointed to Verizon Wireless’ current spectrum position, which is lower on a megahertz-per-customer basis than its rivals, as a potential sticking point for the carrier to be able to support unlimited data services. However, the carrier is looking to tackle that issue with the use of greater network densification and refarming of 2G spectrum.
“The reality is that losing a few hundred thousand customers a quarter is worth it for Verizon, which generates an eye-popping 60% [earnings before interest, taxes, depreciation and amortization] service margins on 113 million retail customers, the vast majority of which are postpaid,” noted BTIG analyst Walter Piecyk, in a recent report. “It’s also likely that it will take time for the degradation of Verizon’s network quality to manifest in market perception and even when that happens, phone and service plan contracts can retain customers, despite the offers of their peers to pay-out termination fees.”
This last point has increasingly been hit upon by rivals, with both Sprint and T-Mobile US tilting much of their advertising toward the notion of inferior network quality. Sprint has even gone so far as to hire away former Verizon Wireless spokesman Paul Marcarelli – the “can you hear me now?” guy – to tout its improved network coverage and lower price point.
One possible catalyst for a new outlook on unlimited data by Verizon Wireless could be changes in management at the carrier. Former O2 CEO Ronan Dunne was recently tapped to replace David Small as group president of Verizon Wireless beginning next month. Dunne has already shown a different mindset from past management by taking to social media in order to challenge rivals.
Whether that competitive attitude translates to unlimited cellular data remains to be seen. But until the carrier responds in some way, its performance will be under increased scrutiny.
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