Wireless carriers have largely shifted to charging customers based on how much data they use, with voice and texting becoming unlimited commodities, and Verizon Wireless (NYSE: VZ) has come out on top in that business model, according to a new survey. According to a report from Consumer Intelligence Research Partners, Verizon has the most customers paying more than $100 per month on average.
Executives at Verizon have consistently maintained that their pricing is designed to bring in more revenue as customers use more data, a situation that is likely to continue to accelerate as more customers switch to LTE and Verizon's shared data plans.
While Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) still offer smartphone plans that come with unlimited data usage, they are the outliers.
"Verizon has succeeded in getting the most out of its smartphone customers," CIRP partner Josh Lowitz said in a statement. "Not only do more of their customers use Verizon data on additional devices, with limited data plans, their customers also pay for their actual data usage."
Verizon no longer reports average revenue per user (ARPU) but instead now is reporting average revenue per account (ARPA). The company made the change to account for its More Everything shared data plans. In the first quarter, Verizon's retail postpaid ARPA was $159.67 in the quarter, up 6.3 percent year-over-year and the carrier said 50 percent of its postpaid accounts were on More Everything plans.
According to CIRP, 37 percent of Verizon customers pay an average of between $101 and $200 per month--and 14 percent pay more than $200 per month. At AT&T Mobility (NYSE: T), 41 percent of customers pay an average of between $101 and $200 per month and 5 percent pay more than $200 per month.
Fully 39 percent of Sprint customers pay between $51 and $100 per month on average and 47 percent pay between $101 and $200. At Sprint no customers pay more than $200 per month on average.
T-Mobile is by far the cheapest of the Tier 1 carriers, according to the CIRP report, which notes that 25 percent pay between $25 and $50, 43 percent of customers pay an average of between $51 and $100 and 27 percent pay between $101 and $200.
However, even as most of the carriers are expected to report postpaid subscriber gains in the second quarter, their postpaid ARPU growth has been under pressure. According to UBS data cited by the Wall Street Journal, in the first quarter only Verizon and Sprint managed to report growing postpaid ARPU on a year-over-year basis. In the second quarter, UBS estimates that only Verizon will do so.
Part of that is because of the growing shift toward device financing plans at the carriers, which separate the cost of a device from the cost of service. AT&T, for example has said that by the end of the second quarter around one-half of the company's postpaid smartphone customer base would be on a no-device-subsidy Mobile Share Value pricing plan, and that figure would grow to around two-thirds by year-end.
As the Journal notes, such plans increase revenue and margins since carriers book a portion of the revenue for the device upfront. However, they typically come with discounted pricing for customers who choose to finance their devices. UBS estimates margins for the four Tier 1 carriers rose just 1.3 percent during the second quarter while postpaid ARPU fell 3.4 percent year-over-year.
The carriers are expected to remain in intense competition throughout the rest of the year to retain subscribers and attract new ones where they can, according to a recent report from Technology Business Research.
"TBR expects T-Mobile to maintain the industry's top postpaid net additions in 2Q14 as the Un-carrier strategy and Simple Choice plans continue to have a large impact on the ongoing price war in the U.S. Verizon and AT&T will battle for second place in postpaid net additions, with both operators relying on their shared data offerings to drive increased smartphone and connected device adoption to help offset the decline in basic phone subscribers," TBR said.
TBR said "operators will remain focused on completing initial LTE builds, deploying additional LTE coverage over new spectrum bands and the ongoing price war to drive increased LTE connections and data revenue growth" in the second half of the year.
- see this Re/code article
- see this WSJ article (sub. req.)
- see this TBR commentary
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