2 Telecom Giants To Consider Now, 2 To Avoid

Includes: S, T, TMUS, VZ
by: Mel Daris

According to Verizon (NYSE:VZ), the company has seen a steady stream of existing customers switching from unlimited mobile phone plans to its new 'Share Everything' plan. Under the new plan, customers can add multiple devices such as phones and tablets to one plan which includes a set data allotment each month. Verizon states that more customers than expected have signed up for the new plan knowing they wouldn't receive unlimited data going forward.

Verizon, along with AT&T (NYSE:T), which introduced its 'mobile share' plans at the end of August, moved to shared data plans to encourage customers to spend more on devices and data service. In return, customers only have to pay one bill each month and can take advantage of the latest network technology that both companies provide. Verizon and AT&T provide 4G LTE networking capabilities to most customers.

When Verizon debuted its shared data plan at the beginning of the summer, some speculated the plan would not resonate well with existing customers because these customers would have to sign up for a shared data plan to upgrade their phones (new customers don't have a choice - they have to choose a shared data plan for service). But the new plan hasn't seemed to have any effect on Verizon sales or on its existing customer base. So far, AT&T's shared data plan has received a similar response.

But other telecom companies including Sprint (NYSE:S), MetroPCS (PCS), and T-Mobile have opted not to make the switch to shared plans. Instead, these companies plan to maintain unlimited data plans for their customers.

For now, the type of data plan seems less important to customers than faster download speeds and more hotspots. It is in this area where Verizon and AT&T shine. With the largest 4G LTE networks in place, both companies can easily compete and beat companies like Sprint that still struggle to upgrade their networks. Smaller companies like U.S. Cellular (NYSE:USM) continue to work to enhance their networks to compete with larger wireless service providers.

As customers become more comfortable with the idea of limited data usage, more companies may opt to provide only shared data plans instead of allowing customers to choose. On the other hand, unlimited date implies freedom, which some customers may not want to give up - this is what Sprint and others offering unlimited data plans want; it's also a way to distinguish themselves from other telecom companies. But in a recent study from NPD Connected Intelligence, one of the biggest reasons why most customers aren't as concerned about whether they have unlimited or shared data plans is that they rarely reach the data allotment cut-off anyway. This indicates that customers choosing to purchase shared data plans want the added convenience of one bill for multiple devices and faster download speeds.

Companies that offer shared data plans have one goal in mind: get customers to purchase additional devices and services. With the ability to add several devices to one plan, families can provide all members with some type of mobile device without having to pay extra each month. Most unlimited plans only allow customers to assign one mobile device to the plan (although some companies allow customers to add additional lines to support more than one device).

The major drawback here remains having to share a specific amount of data per month for multiple devices - for families that download large numbers of movies, photos, e-books and other media to mobile devices, data may get used up quickly. To assure customers they will have the right amount of data needed each month, Verizon and AT&T provide tiered plans with different levels of data available. And given that most families also have an Internet connection through a cable company, sharing data over multiple mobile devices should not cause too many household fights.

Unlimited data plans definitely have a shelf life, but I think it's going to be a shorter one than most people expect. Regardless of which plans companies offer, it's important to keep customer needs in mind. Verizon and AT&T have created a one-stop-shop for mobile phone customers that want one bill, one data plan for multiple devices, and easy upgrade options for customers who also want flexible plans that allow them to add devices at-will.

Verizon and AT&T may also be able to persuade those customers willing to sacrifice the freedom of unlimited data for super-fast speeds, something Sprint cannot provide to all its customers at the moment. Sprint has worked hard over the past few months to upgrade its network, however.

But with second quarter earnings of $28.55 billion and free cash flow of $4.15 billion, Verizon has plenty to invest in advertising its shared data plan and in maintaining its network as compared to Sprint, which generated $8.84 billion in revenue with free cash flow of $249 million during the same quarter.

The true test of what customers want from their wireless provider (unlimited data plans or faster download speeds) will become clear only after Sprint completes its network upgrade, as this would allow customers a more even field in which to judge service. But for now, I think most people will lean towards faster network speeds with shared data plans - this is very good news for Verizon and AT&T. If both companies can continue to provide quality customer service, reasonable rates, and network service upgrades on a regular basis, it will become more difficult for other companies to compete, regardless of which data plans they provide.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.