Data is just going nuts! Big data, little data, smartphones, clouds, application ecosystems. So why are Apple and Equinix two of only a few large cap companies in this area with stocks up over 35% over the past 12 months, while AT&T, Verizon, Google and Sprint are market performers or worse? It has to do with pricing, revenues, margins and capex; all of which impact ROI. The former’s ROI is going up while the latters’ are flat to declining. And this is all due to the wildness of mobile data.
Data services have been revealing flaws and weaknesses in the carriers pricing models and networks for some time, but now the ante is being upped. Smartphones now account for almost all new phones sold, and soon they will represent over 50% of every carriers base, likely ending this year over 66%. That might look good except when we look at these statistics and facts:
- 1% of wlx users use 50% of the bandwidth, while the top 10% account for 90%. That means 9 out of 10 users account for only 10% of network consumption; clearly overpaying for what they get.
- 4G smartphone displays (720x1280 pixels) allow video viewing that uses 300x more capacity than voice.
- Streaming just 2 hours of music daily off a cloud service soaks up 3.5GB per month
- Carriers still derive more than 2/3 of their revenues from voice.
- Cellular wireless (just like WiFi) is shared.
Putting this together you can see that on the one hand a very small percentage of users use the bulk of the network. Voice pricing and revenues are way out of sync with corresponding data pricing and revenues; especially as OTT IP voice and other applications become pervasive.
Furthermore, video, which is growing in popularity will end up using 90% of the capacity, crowding out everything else, unless carriers change pricing to reflect differences in both marginal users and marginal applications. Marginal here = high volume/leading edge.
So how are carriers responding? By raising data prices. This started over a year ago as they started capping those “unlimited” data plans. Now they are raising the prices and doing so in wild and wacky ways; ways we think that will come back to haunt them just like wild party photos on FB. Here are just two of many examples:
- This past week AT&T simplified its pricing and scored a marketing coup by offering more for more and lowering prices even as the media reported AT&T as “raising prices.” They sell you a bigger block of data at a higher initial price and then charge the same rate for additional blocks which may or may not be used. Got that?
- On the other hand that might be better than Walmart’s new unlimited data plan which requires PhD level math skills to understand. Let me try to explain as simply as possible. Via T-Mobile they offer 5GB/month at 3G speed, thereafter (the unlimited part) they throttle to 2G speed. But after March 16 the numbers will change to 250MB initially at 3G, then 2G speeds unlimited after that. Beware the Ides of March’s consumer backlash!
Unless the carriers and their channels start coming up with realistic offload solutions, like France’s Free, and pricing to better match underlying consumption, they will continue to generate lower or negative ROI. They need to get control of wild data. Furthermore, if they do not, the markets and customers will. With smartphones (like Apple's, who by the way drove WiFi as a feature knowing that AT&T's network was subpar) and cloudbased solutions (hosted by Equinix) it is becoming easier for companies like Republic Wireless to virtually bypass the expensive carrier plans using their very own networks. AT&T, VZ, Sprint will continue to be market performers at best.
AT&T pricing relies heavily on breakage
Useful stats on data growth from MobileFuture
FoxNews report on AT&T Data Throttling
This article actually suggests "dissuading usage" as 1 of 4 solutions
Consumer reports article whereby data equivalent voice pricing = 18 cents, OTT on lowest plan = 6.6 cents, OTT on highest plan = 1 cent
New shared data plans set a new high standard