It seems like AT&T gets a kick out of rocking the ‘unlimited data price plan’ boat. At the Milken Institute’s Global Conference last week, CEO Randall Stephenson admitted that he should have eliminated unlimited data plans sooner. Randall said, “I wish we had moved quicker to change the pricing model to make sure that people that were consuming the bandwidth were paying for the bandwidth. And so we had a model where the high-end users were being subsidized by the low-end users.”
AT&T started to roll out its “network management program” in 2011. As part of this initiative, the carrier began in March of 2012 to alert unlimited data plan customers of their usage, as well as throttle their consumption, all to migrate these customers onto tiered data plans. Unsurprisingly, customers were outraged at the move and the resulting spike in per MB costs. To save face, AT&T posted an explanation and defense of its decision online.
In February 2012, Cisco published a white paper revealing that the top 1% of mobile data subscribers generated 24% of mobile data traffic in 2011, which was down from 35% in 2010. However, this statistic has been diluted by the significant increase in the amount of smartphone users with data plans. Digging deeper, even though unlimited data plan usage grew at a slower rate than tiered data plans year over year, unlimited data plan usage is ~715 MB per month, compared to tiered data plan users consuming only ~388 MB per month. Despite the decrease in the overall percentage of mobile data traffic by unlimited data plan users, these customers still consume more data.
I am not saying it is fair for AT&T to pull the rug out from under its unlimited plan customers. But in the face of FY 2011 billion dollar losses, plus the pressure on OPEX from hardware subsidies, AT&T had to start making drastic changes to protect its wireless service margin. However, despite the bad press in Q1 2012, AT&T reported zero negative financial impact. AT&T was able to protect its wireless service margin, which led to relatively strong growth.
Sprint would rather have angry investors than angry customers
On the flip side, Sprint’s CEO Daniel Hesse announced (on the same day) that he is taking a pay cut to appease disgruntled shareholders. Of the top US wireless carriers, I believe Sprint is least prepared to launch the next generation iPhone. Sprints results continue to demonstrate it hardly has the wherewithal to sustain the OPEX associated to carrying the iPhone 4S. Shareholders have every right to be wary, as current sales run rates forecast it will be challenging for Sprint to make good on its commitment of $15.5 billion in iPhone inventory over 4 years.
In the wake of AT&T’s attempted elimination of unlimited data plans, Sprint has launched its own plan available to all customers. If AT&T, the largest wireless carrier, feels that unlimited data plans are neither sustainable nor profitable, what makes Sprint believe it is any different?
Investors are starting to express their concern, but Mr. Hesse continues to make unsustainable business decisions on behalf of Sprint. I cannot help but laugh that he feels the cost savings associated to decreasing his salary is a fair remedy. I know Mr. Hesse is well paid, but not nearly enough to balance the OPEX associated to irresponsible iPhone deals and wireless revenue margin melt from unlimited data plans. Sprint just doesn’t have the revenue to gamble with and potentially lose.
It is too soon to know how many AT&T customers are likely to migrate to Sprint for its unlimited data plan, but I believe it will have little to no effect. Customers who think porting over to Sprint to receive unlimited data will prevent them from experiencing data throttling are wrong. It is only a matter of time before Sprint implements data throttling as a cost control measure to keep its head above water, just like AT&T did.
It appears that Mr. Hesse’s plan is to lead a data revolution doomed to failure. How long before the guillotine comes down?