LTE pricing: What's 1 MB of mobile data really worth?

Sue Marek

The debut of Apple's (NASDAQ:AAPL) new iPad Air and iPad mini with LTE connectivity prompted an interesting dust-up in the mobile data pricing game. Just one day after Apple revealed its new iPad would be available from T-Mobile US (NYSE:TMUS) for the first time, the operator announced that it would give 200 MB of free LTE data each month for life starting Nov. 1 to customers who use tablets, including the new iPad, on its network.

Offering 200 MB of free data bundled with a new device isn't necessarily a new innovation for T-Mobile. The company launched a similar program in September 2012 when it bundled 200 MB of free HSPA+ data per month to customers who purchased a new Hewlett-Packard notebook. Unlike the iPad deal, however, the HP offer was only available for two years, not the life of the device.

Nevertheless, the motivation behind the offer is the same--getting people over the pricing hurdle that may be preventing them from buying a cellular-enabled tablet vs. a Wi-Fi only device. In Apple's case, the cellular-enabled iPad costs about $130 more than the Wi-Fi-only iPad. In an interview with FierceWireless, Jason Young, vice president of marketing at T-Mobile, said that the company had great success with the HP program and that's why it decided to evolve it to tablets. "Consumers don't like high upfront costs," he said. "They don't want to make a commitment to monthly data so we are giving you free data to get started with so you can understand your usage patterns."

While I think T-Mobile's strategy is smart, it does make me wonder about the overall message wireless carriers are sending to consumers about LTE data and its value in the market. There's a huge discrepancy in the pricing of LTE data among the operators with some offering free data and others charging a premium.

Consider this perplexing pricing scenario--for $5 I can buy a day-pass from T-Mobile that will give me 500 MB of data, or I can buy a day-pass from AT&T (NYSE:T) and get 250 MB of data, or half the amount T-Mobile offers. Even more shocking, I can buy a measly 25 MB of data from Sprint  (NYSE:S) for $5 and have the entire month to use it up. Not surprisingly I can't buy anything from Verizon Wireless (NYSE:VZ) for $5 because that operator doesn't offer a day pass or a data plan for less than $20 per month for 1 GB of data.

The huge price difference is confusing, to say the least. Of course, Verizon and AT&T are focused on moving customers to shared data plans, where they can share a bucket of data between several different devices including tablets. According to Susan Welsh de Grimaldo, director of the mobile broadband practice at Strategy Analytics, LTE pricing reflects the different strategies of the operators.

For example, T-Mobile is a new entrant in the iPad market and wants to create waves and get some traction so it is offering 200 MB of data per month for free. AT&T recently launched a $5 day prepaid day pass for tablets for 250 MB of data because it currently has the most tablets on its network and wants to see that continue to grow and hopes it can upsell customers to higher priced data plans.   

However, Welsh de Grimaldo also noted that it's getting much easier for operators to react quickly to the competition and mirror what others are doing. In other words, if T-Mobile's free 200 MB of data works, others may follow that lead. 

For now, however, it appears that when it comes to LTE data pricing, anything goes. Welsh de Grimaldo predicts that pricing experimentation will continue as operators try to figure out what pricing models work and which ones drive the greater margins.--Sue

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