Is cellular connectivity a necessity for tablet users?
Part of the motivation behind the shared-data plans launched by AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) is the hope that these plans will encourage more customers to purchase cellular-enabled tablets and other types of connected consumer devices. By allowing up to 10 devices to share data, the plans let consumers adopt all types of new connected devices without adding a new rate plan for every device.
Will shared-data plans drive more cellular-enabled tablet sales? The answer depends on whether you think consumers view cellular connectivity as a necessity or an expendable option.
Iain Gillott, founder of iGR Research, believes the plans will encourage sales, noting that the new shared data plans will mean that a current tablet user who is already paying for a cellular data plan will see his or her bill drop from $25 per month to $10 per month. "I have an iPad today and have just stopped using the $25-a-month plan to use tethering. The new plans mean that the tablet would only be an extra $10 [per month], which is reasonable," Gillott said via email.
But Mark Lowenstein, founder of Mobile Ecosystem and a columnist for FierceWireless, said that he believes that operators may initially see a slight uptick in cellular-enabled tablet sales. But ultimately he said consumers will be more likely to buy Wi-Fi-only tablets and use them with their now "free" smartphone hotspot services offered under these shared plans.
Both AT&T and Verizon include smartphone hotspot tethering--which allows smartphone users to share their cellular connection via a Wi-Fi hotspot broadcast through their smartphone--for no extra charge in their shared data plans..
Meanwhile, analyst firm CCS Insights believes that cellular-enabled tablet sales will actually decline over the next four years despite the new shared-data plans. The company's latest report, which looks broadly at the tablet market and not just cellular connectivity, found that 48 percent of tablet shipments in 2011 were cellular-enabled. The firm expects that percentage will slowly diminish to 37 percent in 2016.
CCS notes the reason for the decline is because "most users do not regard cellular connectivity in tablets as a must-have, especially given the current price of tablets and mobile data subscriptions."
The key word in the above statement from CCS is "must-have." Although consumers might not consider cellular connectivity a necessity, so far many have purchased cellular-enabled tablets because they are uncertain how they will use the tablet and don't want to be caught without the cellular-connectivity option if they need it.
And that uncertainty from consumers might actually be the key to the success of the shared data plans. Consumers might not think they need the cellular connectivity, but by purchasing a cellular-enabled tablet and adding the tablet to their monthly shared data plan for just $10 per month they are guaranteeing they will have a wireless connection if they need one. And for that guarantee, $10 per month is a lot more palatable than the previous cellular data rate plans of $25 per month or more.
Of course, as more consumers adopt tablets and become accustomed to using them, they may find that cellular connectivity is not necessary. For operators, the challenge is to not just make shared data plans available, but also to provide users with reasons to purchase to those plans. --Sue
P.S. For more on wireless data pricing, take a look at our comparison of Sprint, AT&T and Verizon's LTE pricing. The comparison takes into account the recent shared data offerings from AT&T and Verizon. See our special report here.