The chief executive of American carrier AT&T recently teased the industry when he claimed it was ‘inevitable’ data-only contract plans would come to market within two years.
Randall Stephenson (pictured) made it clear that the network did not, for now, have such a plan primed for launch, but he did talk up its prospects. Any such plan would work by considering phone calls and texts as another form of data, with consumers likely to make calls through Skype or Google Talk. Stephenson told delegates at an investor conference in New York: ‘I’ll be surprised if, in the next 24 months, we don’t see people in the marketplace with data-only plans. I just think it’s inevitable.’
American carriers are currently experimenting with how they sell data. Like the UK, increasing demand for smartphones in the US is leading to more data use among consumers. Both AT&T and Verizon have proposed tiered data plans, where pricing could be tied to different download speeds, use at certain hours of the day, or context sensitive, with streaming video more expensive than reading emails, for example.
Data growth is currently only heading in one direction, as Stephenson’s prediction implies. It is the same on this side of the Atlantic – Vodafone Group CEO Vittorio Colao recently said it offers the ‘single biggest growth opportunity’ since voice services launched a quarter of a century ago. But how likely is it that the likes of Three or O2 could one day offer a data-only plan?
One critical factor is that UK operators have more pressing priorities in the short term. One senior mobile industry source said: ‘My impression is that a UK operator at this point in time, with the 4G auction coming down the track, would be quite insane to go down the data-only route.’ He argued that while surging data levels across the four operators are grabbing headlines, voice is far from dead. He said: ‘It’s cutting off a revenue stream that’s currently earmarked to pay for the infrastructure rollout for 4G. You need to remember that voice [use] is still high.’
Strand Consult analyst John Strand said that as things stand a data-only plan is ‘probably the worst product a mobile operator can launch’. He recalled how Dutch carrier KPN’s financials were hit when it launched a data-only service a few years ago: ‘In a world where SMS traffic generates 15% of the operators’ revenue, data-only products will first cannibalise on the SMS traffic and after that on the voice traffic when customers migrate to voice over internet protocol (VoIP) solutions.’ Strand claimed that if an operator was to move to data-only plans now, its profits would be hit by between 5-9% during the first year, and more in the second.
Dead in the water?
So are data-only plans dead before they even arrive on these shores? Perhaps not. It is inconceivable that the speed of data revenue growth will slow down, particularly given how smartphones are becoming cheaper and more accessible. As 4G networks bed in, they will become more efficient at handling data-heavy plans.
And as the UK typically lags a few years behind the US market, one senior source suggested data-only plans could land here in 2016.
Another claimed the UK industry would have a ‘tremendous’ job on its hands educating consumers before data-only plans were viable. The source said: ‘People still understand price in terms of minutes and texts. How do you explain what 500MB actually means?’
One obstacle to getting UK consumers comfortable with paying for data is that it can be free if you shop around, said sources. This differs from the US, where free data has been off the agenda for some time. And despite the growing appetite for smartphones, there are still a huge amount of 2G devices out there.
However, sources raised the interesting case of Three, and how data-only deals may appeal to the network. The operator has long campaigned against what it sees as high mobile termination rates (MTRs), so having its customers make calls through the likes of Skype could be appealing. A Three spokesman would not be drawn on the claims, but said: ‘Data is core to all of our offers. For those who only want data, our MiFi units represent a great option.’
So the deals could be something to expect in years, rather than months, to come. Strand said the best option for UK operators is effectively what they do already – bundling data, SMS and MMS into one package. However, the changing nature of devices means the contracts of the future could be very different.