Strategy Analytics: Sponsored data plans growing in U.S., China, Europe and elsewhere

AT&T Mobility (NYSE: T) has only 10 pilot customers for its Sponsored Data program a year after the carrier launched the program, but a new report from research firm Strategy Analytics claims that sponsored data plans are gaining traction around the world. The report notes that the U.S. is probably not the most favorable market for sponsored data plans, but it said there is definitely potential for such plans in the U.S.

Sponsored data plans give customers free access or zero-rated data for certain services that the providing companies subsidize.

AT&T has Sponsored Data agreements in the U.S. with Aquto, Liberty Mutual, Macheen (which was purchased by Good Technology), Wazco, DataMi, Syntonic Wireless, LotusFlare, HipCricket, WPS/Kingsoft and 5 Screens Media. But AT&T is not alone: The report notes that there are a range of operators around the world that are dabbling in sponsored data, including Airtel, China Telecom, China Mobile, China Unicom, Telefónica, Telenor, Telkomsel, TIM Brasil and Vodafone.

The report notes that there are numerous types of companies willing to pay carriers to sponsor data. Those include advertisers or brands that would do so as a reward for viewing ads. Content companies, application developers or app stores might sponsor data to aid in app discovery or to increase app usage. Enterprises might pay for data access to their apps. Governments or other agencies might sponsor data for public information and services. Indeed, Facebook's (NASDAQ: FB) Internet.org program zero-rates Facebook and other basic Internet services in partnership with operators. The group does this in the hopes of connecting consumers around the world to the Internet and eventually getting them to pay for access to additional data services.

According to the report, use cases range from advertising, free access to online commerce apps, games and app stores, to support for bring-your-own-device (BYOD) by enterprises, education and healthcare and connectivity solutions for wearables and Internet of Things devices.

Although there are a variety of uses cases, carriers should not expect to generate booming revenue from sponsored data programs, the report adds. "Sponsored data is a tool for monetizing data and enhancing customer engagement to drive adoption of mobile data by new users and increase usage by existing mobile data users," the report notes. "Mobile operators should consider sponsored data not necessarily as a large revenue generator but as part of a broader platform approach to offer new, more flexible business models for engaging other companies in the mobile ecosystem in a way that contributes to improved customer reach and engagement as well as to monetizing network upgrades."

In terms of AT&T's program, which was first introduced in January 2014, the report says it needs to be placed into context alongside similar programs from other operators around the world. "AT&T partners are exploring a range of use cases, focusing on the U.S. consumers' concerns not to go over their data bundles, which are relatively large allocations compared to other parts of the world," the report notes. "The typical U.S. consumer is somewhat hesitant to click on video advertising that may be data intensive as they do not want to risk overage. For consumer brands, mobile ads target particular U.S. user segments they aim to reach, such as millennials with smartphones."

AT&T partner Aquto lets AT&T customers to view its video ads without worrying about those ads cutting into their monthly data allotment; DataMi lets AT&T offer sponsored over-the-top content like podcasts from Slate magazine and or news from digital news aggregator Trove; and Syntonic Wireless offers zero-rated access to a content store with links to popular e-commerce, sports, news and other websites.

In more mature markets like the U.S., the report notes, consumers want free or zero-rated apps like streaming music or video. "For example, they may be more willing to watch an HD version of a movie trailer that might be 10-12 MB of data without worrying if it will take them over their data limit, thus sponsored data avoids the challenge that the consumer might not watch the trailer due to concern with overage," the report notes.

"Nonetheless, multiple incentives can work in the U.S., from no data charge for app downloads, loyalty rewards, engagement with brands, and 'free shipping' of data for specific apps or services," the report adds. "Sponsored data is still in its early days and multiple use cases will emerge and be tried in the U.S. to see what works best and makes sense to the multiple parties involved--and potential impact of net neutrality rules and interpretation/implementation of rules is receiving much discussion. More education of consumers is still needed, people seem to understand the model but are not convinced at first, according to some players in the market. Brands and enterprises are interested in cross-carrier solutions, so as these further develop new examples will emerge."

China is a more favorable market for sponsored data, as China's three main operators all offer some form of it, the report notes. In China, carriers sponsor both app downloads from Android app stores and data usage from apps, according to the report. "Unlike free Facebook offers from operators where the operator bears the cost of the zero-rated data, the app stores pay the operator a wholesale fee for the data the end-customer uses," the report notes. "Use of online retail is relatively high in China and quite competitive among online storefronts, and consumers tend to have small data bundles or per MB use thus the cost of data for small allocations is a more immediate problem than in markets like the U.S. where data bundles are typically much larger."

In terms of regulatory concerns, the report notes that some consumer advocates and others argue that sponsored data favors large companies with big budgets, "yet these large companies have access to many forms of advertising, brand building and raising consumer awareness of their products. It could be argued that sponsored data with small scale campaigns would provide a cost-effective tool for smaller players to get more visibility against the large companies, particularly in online based businesses like app stores, social networking apps, etc., where discoverability beyond the top apps can prove challenging."

The FCC's net neutrality rules do not take a position on existing plans like AT&T's Sponsored Data program.

For more:
- see this release

Related Articles:
Net neutrality rules won't force carriers to get FCC permission for new plans, officials say
FCC approves net neutrality rules for wireless, putting future zero-rating plans on notice
AT&T still 'very bullish' on Sponsored Data despite just 10 customers so far
Sprint's App Pass to give subs unlimited access to select apps, games for $5/month
AT&T envisions car-makers sponsoring the data for in-vehicle connectivity
AT&T Sponsored Data partner Syntonic Wireless to launch 'toll-free' content store

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