AT&T (T) has rolled out its new data plans with caps and the big question was whether rivals would follow suit. So far, it appears AT&T may be alone with its metered data plans.
As a refresher, AT&T now offers two data plans. The first is $15 a month for 200 MB and another $15 for 200 GB should you go over the cap. The other is $25 a month for 2 GB of data. Pass the cap and its $10 for an extra 1 GB.
Bernstein analyst Craig Moffett said in a research note that the most interesting thing since AT&T’s data plan is what hasn’t happened. Indeed, the U.S. wireless industry hasn’t followed. Moffett cast this inaction as a prisoner’s dilemma. The industry would be better off if it cooperated and followed AT&T’s lead. But if no one follows AT&T is at a market disadvantage. Clearwire (CLWR) has already said it will keep all you can eat data plans.
From the outset, Clearwire was the least likely to follow. They have a boatload of spectrum… and no customers. Capacity constraints sound like a prince’s problem when you’re a startup. Verizon is at the other extreme. They have a better network than AT&T, but they clearly understand that they will have to ration access to it in order to keep it that way. And they have signaled six ways to Sunday that they like the idea of metering. Perhaps they feel they can gain some short term advantage by delaying, and that they can switch later. But that’s a dicey game, since any customers they pick up as a consequence of their unlimited positioning would be more than a little disgruntled if Verizon surprises them with caps of their own. Their window to follow is a narrow one.
So where do we go from here?
Moffett outlined two scenarios. In one scenario, everyone but Clearwire follows AT&T’s lead. Metered usage becomes the standard. If metering becomes the norm, mobile video and music are in jeopardy. Moffett reported:
An ‘everyone meters’ scenario would, among other things, very likely spell the end of mobile video. According to Neil Hunt, chief product officer at Netflix, their content is currently encoded at a minimum of 500 kilobits per second and a maximum of 3.4 megabits. At 500 kilobits, a 200 MB plan user would burn through their monthly data allotment in just 12 minutes per week… and that’s assuming they didn’t use their data plan for anything other than watching video. Their next generation Silverlight player will be encoded at a minimum of 375 kilobits per second and a maximum of 1.5 megabits. At 1.5 megabits, the intro plan would be tapped out in four minutes per week. And even the power users’ DataPro plan would allow for less than an hour of video per week (just 41 minutes). Customers would pause before clicking on that link you just sent of the squirrel on water skis.
Aside from the mobile video problems, Moffett noted the following:
- Under metering, there would be no wireless broadband substitution for wired alternatives. Cable’s market share and status would be ensured for go-to broadband delivery.
- App developers would compete on the efficiency of apps.
- Device demand could fall for high-end phones. Rich media consumption would be costly so why would you buy a fancy phone that encourages you to eat up your data plan.
In the second scenario, AT&T’s data plan move fails.
“If their effort to lead the industry to a rationed future were to fail, all these applications would thrive. Except that network quality would degrade. Potentially dramatically so,” said Moffett.
In addition price deflation would accelerate. That’s bad news for carriers, but good news for consumers—at least for a while. Moffett wrote:
Uncapped, deflation would be far worse. Clearwire has indicated on conference calls that their average user consumes 7 Gigabytes per month. At $40, that’s just $0.006 per megabyte. And that’s only for their mobile users. We were told yesterday in Seattle that their Wireline broadband replacement subscribers use “roughly twice that.” That’s just $0.003 per megabyte, sports fans. Quite a drop from the $1 per megabyte that currently accounts for 85% of the industry’s revenues. With radically (catastrophically?) lower prices would come lower investment returns… and therefore lower investment.