Family data Plans coming to the US May 17, 2012Posted by chetan in : US Wireless Market , trackback
I have been calling for family data plans for sometime. Like gravity, it’s inevitable. Consumers want simplicity and common sense. When i talked to CNBC earlier this year (Jan), i said that there is a 90%+ probability that this will happen this year. I discussed this more with Bloomberg last week and some of the comments were published in this piece below. Yesterday Verizon CFO provided further clarity.
By Olga Kharif and Scott Moritz on May 16, 2012
Verizon Wireless and AT&T Inc. (T) (T) are both preparing to roll out shared-data pricing plans this year. Whoever makes the first move will transform the way the industry charges for wireless service.
The new shared plans, which may be announced as early as next month, would let customers split one bucketful of Internet data between their phones, iPads and other wireless devices, providing an economical option for families, small businesses or people with a lot of Web-connected gadgets.
With billions of dollars at stake, Verizon and AT&T are hesitant to test the waters first, said Chetan Sharma, an independent wireless analyst. Getting the approach right could reduce customer turnover and get more users to embrace data plans, which brought in $62.7 billion industrywide last year, according to trade group CTIA. A wrong move would lower the amount of money that subscribers pay, while increasing network traffic and the cost of maintaining networks.
“They are watching each other,” said Sharma, who covers telecommunications from Issaquah, Washington. Once one U.S. carrier introduces a shared data plan, the rest of the industry, including Sprint Nextel Corp. (S) (S) and T-Mobile USA, won’t be far behind, he said.
Consumers have a growing appetite for data plans, which let people surf the Web and use other Internet functions on their devices. Apple Inc. (AAPL) (AAPL)’s iPhone has fueled demand by making it easy to use data-intensive features, such as online applications and the Siri voice-activated personal assistant.
While U.S. carriers already offer family plans to consumers, they’re more focused on calls. Each user and device is typically assigned an individual data plan, often at $10 to $50 apiece.
For carriers, the rewards of offering shared data can be huge, said Reade Barber, a vice president at Rogers Communications Inc. (RCI/B), Canada’s largest wireless carrier. His company would know: It adopted the strategy in 2009.
“The number of people using data at Rogers just exploded,” he said. More than 25 percent of Rogers’ family-plan subscribers use shared data plans, he said. “We attracted a lot of new users of data.”
The approach can entice consumers who only pay for voice or texting plans to pony up for data, bringing extra money to carriers. Or a family might shell out more for their data plan to let the kids have Internet access on their phones. Families may boost monthly bills by $15, said Susan Welsh de Grimaldo, an analyst at Strategy Analytics in Newton, Massachusetts.
The risk for carriers is that customers who are currently happy to pay for separate data plans — say, for their kids or an iPad — will consolidate them and lower their bills.
The approach also may increase network traffic and costs. Today a consumer may pay for 2 gigabytes of data a month but only use 500 megabytes, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. With more devices tied to the same data plan, the unused portion would shrink. That could force carriers to ramp up capital spending, he said.
“The business may be getting more capital intensive,” Moffett said.
Still, it would benefit carriers if consumers become more dependent on their data plans. Today, most wireless customers only use their carriers for their phones. If the price is right, they may add an iPad, laptop or some other hardware.
The shared-pricing approach is part of a push to get users to pay for wireless service for everything from health monitors to Internet TVs. There will be more than 250 million active devices on shared plans globally by 2015, up from a few million in 2011, according to Infonetics Research Inc.
“When billing and service plans are a little more user- friendly, customers will be more interested in adopting more devices,” said Shira Levine, an analyst at Campbell, California-based Infonetics.
Sales of the iPhone and other smartphones could get a boost as well. About 15 percent of all smartphones sold by 2015 will be part of shared-data plans, according to Infonetics. At Rogers in Canada, a typical smartphone user pays twice as much as a voice-only user.
While U.S. carriers already offer some Internet-sharing plans, they generally work with Wi-Fi access — not cellular connections. Sprint’s MiFi 3G/4G Mobile Hotspot by Novatel Wireless product provides Internet connectivity to as many as five Wi-Fi devices located nearby. Plans start at $35 a month. A tethering plan at T-Mobile lets a smartphone function as a Wi-Fi modem, supporting as many as five gadgets for $15 a month.
Verizon may have the most urgency to take the shared-data approach because it wants to spur users to add more devices, such as tablets, Sharma said. AT&T has made more progress in that area, in part because of the iPad. Apple picked AT&T as the first U.S. carrier to offer iPad service when the tablet debuted in 2010, though Verizon now supports the product as well.
In the first quarter, AT&T added 230,000 connected devices. Verizon doesn’t break out those figures.
Verizon, based in Basking Ridge, New Jersey, has said it plans to offer shared-data pricing in the next few months.
“We are probably going to launch data share plans this summer,” Chief Financial Officer Fran Shammo said in an interview. “We think we will be the leader in this category. It will be a new innovative pricing plan for data. You can expect tiered pricing.”
Shammo updated the strategy today in a presentation to investors at a JPMorgan Chase & Co. conference. He said the company will start shared-data plans on new LTE devices, which means people upgrading from the 3G standard would have to give up their unlimited plans. Upgraders would be “moving away from, if you will, the unlimited world” and shifting into a tiered shared-data plan, Shammo said.
AT&T, which ranks second to Verizon in U.S. wireless customers, is less specific.
“We’ll have something later this year,” said Ralph de la Vega, president of the Dallas-based company’s mobility division.
The shift will probably change the way consumers use tablets, Sharma said. Only 10 percent to 12 percent of tablets sold today use cellular connectivity, with most relying on Wi-Fi links, he said. Attractive pricing plans could boost that number to 50 percent, Sharma said.
Users of shared-data plans also tend to stay with their carriers longer, Rogers’s Barber said.
“It helps our churn,” he said. “People have a plan they believe is good for them.”
For now, Sprint and T-Mobile aren’t supporting the switch to shared data plans. The two companies, ranked third and fourth in the U.S. market, say the approach will make it harder for families to track how the data is being used. That may lead to more surprise bills for consumers, said Will Souder, vice president of operations and business planning at Sprint.
Still, more than 60 percent of smartphone owners are interested in shared plans, according to Strategy Analytics. That may make the change unavoidable for the industry.
“Data pooling is inevitable and makes all the sense in the world for the carriers,” said Dan Hays, a consultant with PricewaterhouseCoopers LLP. “It creates an environment where people can use more devices without having to think about it.”