Unlimited vs. metered data: Which pricing strategy will win?
When it comes to mobile data pricing, it appears as if wireless operators have quickly aligned into one of two camps: Those that offer metered data (AT&T (NYSE:T) and Verizon (NYSE:VZ)) and those that don't (Sprint Nextel (NYSE:S) and T-Mobile). I believe that the challengers in the market (T-Mobile and Sprint) are using unlimited data to entice subscribers to their networks and then hoping they can hold onto them when they inevitably end up migrating to a metered data pricing scenario.
Some believe that there is no need for T-Mobile and Sprint to move to metered data pricing. NPD's Connected Intelligence group released a report indicating that most people use less than 2 GB of data per month with their smartphones and that unlimited data plans aren't necessary. Specifically, the firm said that just 11 percent of T-Mobile customers use more than 3 GB of data per month vs. 4 percent for AT&T and Sprint and 3 percent for Verizon. NPD noted that T-Mobile's users tend to be younger and more likely to view video and stream music.
Judging from NPD's stats, T-Mobile and Sprint are playing it smart by offering customers unlimited data. Customers believe they are getting a deal, even if they aren't.
Nevertheless, I think unlimited data pricing will eventually lose in the data pricing battle and all operators will have to deploy some type of controls on consumer data usage--whether it's through metered pricing or creative bundling. Not all customers need unlimited data, but as smartphone penetration grows and apps become more popular and easier to discover, data usage will continue to skyrocket.
Sprint is already hinting that it may eventually have to ditch unlimited data and I think T-Mobile will follow. At last week's Mobile Future Forward conference in Seattle, Sprint President of Network Operations and Wholesale Steve Elfman said that the company is working hard to integrate Wi-Fi offloading and make content more efficient on the network so that the network isn't taxed from all the data usage. However, Elfman was careful not to promise that unlimited data pricing would continue indefinitely, noting that unlimited pricing is a differentiator for the company "at this time."
Likewise, during an investor conference on Sept. 13, Sprint CFO Joe Euteneuer hinted that down the road Sprint may shift to metered pricing or look at other ways to price its services to grow its revenues. "When we finish LTE we can look at where our competitors stand on metered pricing and price our stuff accordingly," he said.
There are other pricing options beyond unlimited or metered that may make more sense and be less obtrusive for consumers. For example, operators could bundle content with pricing and offer customers the chance to watch a certain number of video clips for a flat fee.
Sprint continues to push the need for "simplicity" when it comes to pricing for customers. And while I agree with that philosophy, I do not believe that simplicity equals unlimited data all the time. Operators have a big challenge ahead--figuring out how to deliver data services and speeds that customers want without creating a logjam in their networks. I don't think we've found the right pricing scenario yet that will solve both those problems, but I'm hopeful that operators are moving in the right direction. --Sue