By Kyung Mun
When I read about AT&T's recent announcement to re-introduce an "unlimited" data plan, my initial thought regarded whether the industry has an excess supply problem and whether it needs to reinvigorate demand. Last time the U.S. wireless industry actively promoted unlimited data plans, the purpose was to drive utilization of newly built LTE networks with smartphone sales. With increasing utility of smartphones supplemented with vibrant developer ecosystems, the data usage and utilization eventually grew. When the data growth began to encroach on the network supply in key markets, the top carriers phased out of the unlimited data plans to new family plans and device upgrades to balance demand and network supply.
So, why is AT&T bringing back its unlimited data plan after a six-year hiatus? Has it increased its network capacity enough that the company doesn't care about rapid demand growth?
The answer may lie in the conditions around the offering. The latest unlimited data plan from AT&T is eligible only to those who also subscribe to AT&T's video offering either through satellite (DirecTV) or terrestrial (U-verse) links. The unlimited wireless data plan appears to be a promotional tool to cross-sell or upsell to a bundled offering to capture household accounts and reduce overall churn. With AT&T's "integration and bundling" strategy leveraging its diverse network assets of wireless, terrestrial, and satellite links, it is plausible to believe that it may have sufficient aggregate network capacity across all three links to optimize specific service delivery use cases. In contrast, for the other three (predominantly mobile) carriers with more homogeneous network assets, the unlimited data plan offering needs to be carefully weighed against its wireless network supply.
One way to gauge today's and future network supply is to look at the spectrum holdings against the number of subscribers on each carrier's networks. This "spectrum per subscriber" chart illuminates network supply against the backdrop of demand usage as reflected in the subscriber numbers. (Note that the chart reflects both the spectrum in use and in inventory. Except for Sprint, most of the spectrum holdings are in use for LTE and older 2G/3G technologies.)
It is evident from the chart that Verizon has the tightest network supply, considering its vast subscriber base. Perhaps that is a reason for its hesitation in joining the latest unlimited data plan party. In fact, it recently raised the price for its grandfathered unlimited data plan, perhaps acknowledging that unlimited data plan has a value that needs to be paid for. (Interestingly, wireline providers, including AT&T, Comcast, and Suddenlink have recently introduced unlimited data plans ranging anywhere from $10-30 monthly.) With its focus on online advertising (e.g., Go90) for incremental revenue growth, Verizon appears to be less keen on the unlimited data plan which can potentially jeopardize its prized network quality leadership.
Meanwhile, the challengers, T-Mobile and Sprint, never really withdrew their unlimited data plans. They are largely managing the demand through throttling. Managed video streaming partnership with over-the-top online video providers in the case of T-Mobile (Binge On) is one way in which the wireless carriers are trying to get ahead of the demand curve.
Fundamentally, the ingredients for wireless supply are spectrum, capital, and technology. With standardized (3GPP) technology widely available for all carriers, the differentiating factors come down to how much spectrum each carrier holds, and how much capital (i.e., cell sites and radios) a carrier is willing and able to spend toward "manufacturing" enough supply to create a competitive advantage.
The use of unlicensed (LTE-U/LAA) and shared spectrum (3.5GHz) will create additional supply for the wireless carriers, but effective use of unlicensed and 3.5GHz bands will require massive deployment of small cells.
One thing is clear. The "worry-free consumption" of unlimited plans at a fixed price has a universal appeal with consumers. Whichever carrier can map out a continual supply ramp to meet the growing demand for data consumption for communication and entertainment will be well positioned. Looking to the future, we've mapped out the 5G architectures that mobile operators will use to compete with fixed broadband providers, and our calculations indicate that 5G networks can be cost-effective enough to win in the fixed broadband market.
This step by AT&T should be seen as an indication of their future direction: They will add huge capacity to their networks with unlicensed bands, small cells, and 5G (and fiber and G.fast on wireline)….and they are changing back to the unlimited pricing model to fill the pipeline.
Kyung Mun is a seasoned technology strategy and product development professional at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. Over the course of his career, Kyung has contributed to the advancement of mobile communication and telecom industry and learned from colleagues at Motorola, Texas Instruments, Alcatel-Lucent, CableLabs, and a few start-ups in between.