I started working on this post on Friday with the intention of posting today. It seems even more appropriate today with the Verizon strike starting over the weekend......
I've had the chance to speak at four or five conferences over the past few months or so on emerging broadband technologies and services. A good chunk of one of these presentations always covers wireless technologies with a focus on 4G (WiMax and LTE) upgrades. One thing I can count on are questions from the audience about wireless data caps. With Verizon Wireless halting their all you can eat plan on July 6th, these questions have become even more frequent. Here's some of those questions and my answers:
Question: Why are the wireless providers doing this?
Answers:
- Expensive to maintain landline divisions of the big providers (AT&T and Verizon), still comprise approximately half of their business. In comparison, wireless is less expensive to install and maintain.
- Average wireless subscriber voice plan revenue has dropped from $50 per month in 2005 to approximately $33 today. Wireless voice plans have become commoditized.
- Smartphones with expensive data plans have allowed the wireless providers to replace the loss in voice revenue.
- These same smartphones have put incredible demand on wireless bandwidth, wireless spectrum and fiber backhaul connecting cell towers. 4G technologies operate at approximately 10 times the rate of 3G and will continue to challenge the providers when it comes to capacity needs.
- A recent Business Week article refers to cellular upgrades by the major providers in the U.S. as "Money Pits". In 2010 the telcos cost of capital exceeded their return on invested capital - which may mean they're throwing good money after bad.
Question: My students, my own kids, grandkids, etc are constantly texting. Hasn't text messaging provided some nice revenue for the wireless providers?
Answers:
- comScore reports 69.6 percent of U.S. mobile subscribers used text messaging on their mobile devices in 2010.
- The same Business Week piece referenced above estimates text messaging represents 16% of Verizon Wireless revenue and contributes as much as 40% to total profit. AT&T numbers are likely similar.
- Text messaging was designed for voice phones - basically phones that do not have alphabet keyboards. You don't see too many of those around anymore. Smartphones have more capabilities and options.
- The problem is, with a smartphone you don't need a text plan from a wireless provider to send text messages. Smartphone users can send and receive unlimited text messages using free apps like Skype, Google Voice, TextNow and GroupMe using the smartphone's data connectivity. Using many of these apps users can also text from there computers at work, laptops, iPads etc as long as they have an Internet connection.
- Apple will be releasing a new messaging feature called iMessage and the next version of Microsoft Windows Phone will integrate texting with Facebook chat. Both of these services will also bypass the wireless texting technology.
- Text message revenues are going to drop rapidly as users move to apps that run on smartphones.
- Capping data is one way wireless providers will try to recover some of this revenue. There is a bit of a flaw in this strategy though - the average text message (unless pictures are attached) uses very small amounts of data bandwidth.
Question: 4G services are fast and a monthly 5GB cap is not going to last long. Are you concerned?
Answers:
- Right now I'm a little concerned. For example, I'm on an unlimited data plan now from AT&T and I'll keep that as long as I can. Even though I never come close to 5GB per month, if I were to end up switching, I'd go with a provider that does not cap bandwidth. I would not lock into a long term capped data plan with any provider.
- Right now Sprint is still offering unlimited data plans - the big two (AT&T and Verizon) are not. If you are concerned about caps I would take a close look at Sprint.
- In places where I do use my phone for data I would estimate over 50% of the time I'm in a location where I have secure WiFi access. As long as I've got the WiFi radio on I'm not using wireless (3G/4G) bandwidth.
- I live in a small town that only has a couple of gas stations. The price per gallon is always high. The next town over has a number of gas stations in a relatively small area and price per gallon competition is fierce. When one drops their price the others follow almost instantly. Competition is good. Right now AT&T and Verizon have agreed to implement caps. If one of them cracks or another alternative provider comes along (Google, Microsoft or who knows who?) with unlimited service at a competitive price they'll all have to drop their caps fast to prevent customer churn.
Over the long term, I'm not really worried about data caps.
