Wireless Carries Getting Rid of Unlimited Data Plans

Story first appeared in USA Today.

Brace yourself, parents: You may have to share your monthly wireless data allotment with your Netflix-loving kid.

In a bid to sell and connect more devices to their wireless networks — and generate more money per subscriber — major carriers are preparing to introduce "data share" plans that will likely require more coordination among family members.

In such plans, customers will pay for a fixed bucket of monthly data and share it among family members. If you live alone, the data in the bucket can be shared among various devices capable of receiving over-the-air signals, such as tablets, smartphones, security monitors in the car and other connected devices. For example, a customer can choose a plan with 5 gigabytes for two devices, instead of 3 GB for one.
A typical current wireless family plan allows you to share voice minutes, but any data allotment has to be assigned to individual devices.
The changes come as the industry is trying to improve profit margins even as companies invest heavily to build out the next new generation of fast wireless networks, called 4G LTE. As consumers' appetite for data grows unabated, the carriers are tinkering with their data plans to maximize revenues and also to bring in new waves of users who still are using call- and text-only phones.

Verizon Communications, which owns a controlling stake in Verizon Wireless, confirmed to analysts Wednesday that the wireless carrier will introduce a data-share plan and phase out unlimited data plans for customers who renew their contracts or upgrade to new phones. Customers have told Verizon that they want to share data, similar to how they share minutes today. They are working on plans to provide customers with that option later this year.

AT&T has said in recent days that they will introduce a similar plan.

Sprint, which has been promoting unlimited data plans, declined to comment.

Verizon and AT&T didn't elaborate on pricing or details of their data-share plans. But analysts say they'll be structured in a way to make it easier for customers to add new devices and expose more people to surfing the web or streaming a movie while on the move and away from Wi-Fi.

Now, if you buy another (wireless) device, you buy another data plan. A vast majority people don't want that approach. People don't want to pay a full price for a small percentage of data used. But it makes sense if you add a tablet or a child to your plan.

Such plans exist in Asia and Canada. And the changes reflect the carriers' vision of where their future growth will come from.

Phone carriers similarly introduced family share plans for voice calls, and that broadened their base of cell phone-toting customers. With the explosion of demand for data, the carriers are looking to replicate the strategy.

If a carrier can keep a family satisfied with a data plan that makes adding new devices easy, it'll discourage customers from fleeing to a competitor, a constant source of concern for the industry. The motivation is to get everyone data-oriented. Once you get customers sticky to data, they have to keep it.

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Wireless Carriers Fight Over Airwaves

Story first appeared in Bloomberg Businessweek.

The AT&T Inc. Chief Executive Officer said Washington needs to figure out how to clear a regulatory logjam that’s hampering wireless growth and forcing companies to raise prices.

The industry is waiting for the Federal Communications Commission to decide on Verizon Wireless’s proposed $3.6 billion partnership with cable companies, including Comcast Corp. The review of that agreement, announced in December, is holding up related deals for spectrum by AT&T and others.

The popularity of the iPhone and other smartphones is putting pressure on existing networks, prompting wireless carriers to seek more capacity in crowded markets. The FCC has to sign off on each transaction, and its rate of decision making can’t keep pace with the industry’s evolving needs.

The industry is just kind of stuck and sitting there watching Verizon-Comcast to see what happens.

AT&T, based in Dallas, says it faces a shortage of spectrum -- the airwaves that let mobile devices make calls and download data. Ever since its $39 billion takeover of T-Mobile USA Inc. was shot down by regulators in December, it has been warned that the constraints on airwave expansion will cause higher prices. When spectrum is tight, the only recourse carriers have is to charge more, degrade quality or throttle service.

No Delay?

The FCC Chairman fired back at AT&T this week, saying that the failure of the T-Mobile deal didn’t create an industry shortage on its own. There hasn’t been a holdup in the regulatory process.

Hundreds of wireless transactions involving approximately 1,000 spectrum licenses have been approved, some involving licenses valued at billions of dollars.

AT&T won approval from federal regulators for a $1.93 billion purchase of Qualcomm Inc. airwaves in December, three days after dropping its plan to buy T-Mobile USA.

Leap Talks

In February, the Wall Street Journal reported that AT&T was in takeover talks with Leap Wireless International Inc., a pay- as-you-go carrier in San Diego. A Reuters report reiterated yesterday that AT&T had held discussions with Leap in recent months, boosting Leap’s shares 7.8 percent today. In February that there was little chance of AT&T buying Leap.

AT&T shares rose 1.4 percent to $33.59 at the close in New York. The stock has climbed 11 percent this year.

AT&T, the second-largest U.S. wireless-service provider, says that the industry would push ahead with more spectrum purchases if the government weighed in on Verizon’s agreement with cable companies. That deal would let Verizon, the No. 1 U.S. carrier, buy a major swath of unused spectrum from a group led by Comcast.

Companies should be able to buy and sell spectrum more freely, letting them better satisfy regional demand. A carrier in one city may have low market share and more than enough spectrum, while another company has lots of customers and inadequate airwaves to serve them. The government approval process doesn’t let the industry make deals quickly enough to meet customers’ needs, AT&T argues.

Fostering Competition

For its part, the FCC is trying to balance the allocation of spectrum so that customers always have several service providers to choose from. The intent is to keep prices down by ensuring competition.

Distributing spectrum among competitors who can’t use it efficiently doesn’t help. The government either has to let companies pool their spectrum or risk pushing underperforming companies out of business.


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Wireless Market Headed for a Wall

Story first appeared on Bloomberg Business Week

The U.S. wireless market, long the fastest-growing sector in the telecommunications industry, looks like it’s headed for a wall.

Sales of wireless contracts, the most lucrative segment of the business because it locks in monthly payments over long periods, may have shrunk for the first time ever in the first quarter. One big reason for the sharp reversal: Soaring iPhone sales in late 2011 may have satiated consumers’ appetites for wireless plans.

A decline would mark a turning point for the previously rapid-growth business, leaving carriers such as AT&T Inc., Verizon Wireless and Sprint Nextel Corp. fighting over a shrinking pool of customers. A slowdown also forces device manufacturers such as Apple Inc. and Samsung Electronics Co. to battle more intensely for customers.

The huge fourth quarter fueled by the iPhone took all the air out of the first quarter. It’s now a saturated market.

U.S. wireless carriers shed a combined 20,000 contract customers in the first quarter.

The decline forces carriers to seek revenue gains at the expense of weaker players. That may mean increasing promotional activity by carriers who already are selling smartphones at a loss to lure users into two-year contracts, a practice that has reduced profit margins.

To offer the iPhone, for instance, carriers already pay Apple about $600 per phone and then collect $199 from retail customers, subsidizing the difference with revenue from monthly service charges.

These subsidies have narrowed wireless operating income margins at AT&T to 15.2 percent in the fourth quarter, down from 30 percent in the first quarter of 2010.

‘Milestone’

What you’ll see in a saturated market are the forces of consolidation and price pressure. Margins in the U.S. have already been shrinking at a faster rate than any other time in the wireless industry. The possibility that the contract-user number dropped in the first quarter could also be factored in.

The industry is maturing. Given that the pie isn’t growing rapidly any longer, it’s now a game of share-shifting.

IPhone Surge

Within the industry, AT&T and Verizon Wireless probably kept winning users from smaller rivals T-Mobile USA and Sprint Nextel Corp. T-Mobile probably lost 600,000 contract customers and Sprint 125,000 last quarter. Verizon Wireless added 500,000 contract users and AT&T gained 225,000 such customers.

The potential first-quarter drop follows exceptionally strong gains in the previous period, when holiday sales of Apple Inc.’s new iPhone 4S boosted subscriber numbers. The first quarter also is traditionally the slowest sales period for the industry, and contract-subscriber growth may resume after that.

Some analysts say the market may have avoided a contraction in the first quarter. The big four carriers -- Verizon Wireless, AT&T, Sprint and T-Mobile USA -- added 380,000 contract customers collectively.

Sprint, based in Overland Park, Kansas, rose 4 percent to $2.61 yesterday, and AT&T added 0.9 percent to $30.89. Verizon Communications Inc., which owns Verizon Wireless with Vodafone Group Plc, advanced 0.8 percent to $37.74. T-Mobile is a unit of Deutsche Telekom AG. 

Market Penetration

Gains in the prepaid market -- a smaller, faster-growing part of the mobile-phone business -- means the wireless industry as a whole kept adding users in the first quarter. Still, in that market, which includes carriers MetroPCS Communications Inc. and Leap Wireless International Inc., the growth also is slowing.

The number of new prepaid customers added by the industry in the first quarter was an estimated 2.5 million, an 18 percent decline from the year-earlier growth rate.

If you take out every kid under 10 and every adult over 80, you have a market with 125 percent penetration. It’s no surprise the industry is maturing.



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AT&T Gets a Fuzzy Signal on Apple's iPhone

By The Wall Street Journal

Did AT&T get a sour apple when it snagged the iPhone?

Maybe. AT&T's exclusive right to offer Apple's smart phone over the past two years has attracted new customers, and at least initially enhanced the phone company's image. But it is difficult to know whether those benefits are worth what have been some considerable costs, both short and long term.

For investors, and for federal regulators investigating such exclusivity deals, it is worth considering some factors. While AT&T has disclosed at least 10 million activations of iPhones since it became available in mid-2007, only about 40% of those were new customers. That number dropped to 35% in the most recent quarter when the 3GS phone became available.

That means only four million new customers signed up, about 5% of AT&T's total, or 6% of "postpaid" customers on costly monthly contracts. Complicating the math is that some activations represent upgrades from earlier iPhone versions. AT&T said last month that it had about nine million iPhone customers.

More important, perhaps, is that the iPhone likely has kept some AT&T customers from defecting. AT&T's churn, the percentage of customers who leave, has dropped to 1.49% from 1.7% since the third quarter of 2007. Over the same period, Verizon Wireless's churn has risen to 1.37% from 1.27%.

Then there is the extra revenue. AT&T has consistently said iPhone customers generate much higher revenue per user than the average, close to $100 a month. AT&T's "postpaid" average revenue per user has risen 4.7%, to $60.21, since the third quarter of 2007.

But partly offsetting that revenue is the reported $400-a-phone subsidy that AT&T has paid Apple since June of last year. That implies an iPhone customer brings in nearly $2,000 of revenue over the life of a two-year subscription, after recouping the subsidy cost.

Even so, J.P. Morgan Chase analyst Mike McCormack, who is skeptical of the return generated for AT&T from the iPhone, notes that AT&T has said other smart phones -- carrying a much lower subsidy -- tend to generate similar average-revenue-per-user levels as Apple's device. The iPhone subsidy has depressed AT&T profit margins. The metric AT&T emphasizes for its wireless division, operating income before depreciation and amortization, as a percentage of service revenue, has dropped from 41.2% in the second quarter of 2008, before the subsidy began, and has bounced in a range of 33.5% and 40.9% since. AT&T has said repeatedly it expects the margin to rise to the mid-40s long term.

And that margin doesn't reflect the impact of capital expenditures required to upgrade AT&T's network capacity so it can handle the average iPhone users' heavy Internet habits.

It is no secret that iPhone users download games, video and other Web data at two to four times the rate of other smart-phone users. Yet AT&T charges the same $30-a-month fee for unlimited data use it levies on its other smart-phone customers.

The heavy iPhone Web habits have strained AT&T's network, now the subject of numerous complaints. Sanford C. Bernstein analyst Craig Moffett noted AT&T's name was "jeered at every mention" by application developers at an Apple conference in June.

AT&T is taking steps to improve its 3G performance, but the damage to public perception of its network may be difficult to repair.

It is possible Verizon's network would have reacted similarly if that company had offered the iPhone. No matter: It seems likely that if Verizon eventually gets the right to offer the iPhone, some of those four million customers who signed up for AT&T may defect. Indeed, some of the older AT&T customers also may go. So whatever value AT&T got from the device, it seems clear that Apple was the real beneficiary.