Verizon (NYSE:VZ) and AT&T (NYSE:T) have both announced data share plans of their own and Verizon has launched its plan. While both plans share a basic tenet of offering a common amount of data to be shared among multiple devices, Verizon’s plan seemed to lack higher data tiers beyond the 10GB data plan. This was surprising considering that a big reason why data share plans are being introduced is to incentivize the adoption of multiple data-only connected devices. However, in a recent update, the company clarified that it has also been offering five additional data tiers up to 20GB to interested subscribers.  These high-data plans have however not been mentioned on the website to keep things “simple” for a majority of subscribers that use fewer than 2GB a month.
The higher data tiers should however help Verizon appeal to a majority of the grandfathered unlimited plan users who we believe would prefer to subscribe a tiered data plan than to pay the full price of an unsubsidized phone. With the introduction of shared data plans, Verizon stopped offering smartphone subsidies to anyone who prefers to keep his or her unlimited plans. Last year, the carrier discontinued unlimited plans for all new subscribers altogether. As 4G LTE becomes the new standard and spectrum gets scarcer, Verizon will be looking to gradually kill unlimited plans entirely and to monetize every last byte of data that is transferred on its network. It will also look to drive the adoption of other data-only connected devices such as tablets, telematics and M2M devices as we expect most of the future growth to come from these devices.
Move might decrease capital expenses
Verizon and AT&T have both moved to throttle the highest 3G data users in recent times, claiming that the move affects only the top 5% of their subscriber base. This small fraction of the subscriber base are the grandfathered unlimited data subscribers and will be the most willing to jump to LTE for the higher speeds that the technology affords. Using the 4G technology as well as its market-leading LTE coverage as bait, Verizon will be looking to gradually eliminate this problem child altogether. We believe that many of these users will be willing to forego their unlimited plans for a subsidized phone but even if a majority do not, Verizon will not have to worry about the huge upfront subsidies anymore and can use the extra cash to fund the network upgrades.
Since the move does not affect a vast majority of its unlimited plan base that uses less data than the corresponding similar-priced tiered data plan, it is not a high risk strategy for Verizon. On the other hand, if Verizon had chosen to continue the unlimited plans for LTE upgrades, the small proportion of the unlimited data users would have taken advantage of the higher speeds to use an even higher disproportionate amount of data. This could have forced Verizon to spend even more aggressively on its 4G capacity improvements than it had to do on 3G. Verizon has seen its capital expenses increase over the past couple of years as it has been spending on improving 3G capacity as well as rapidly rolling out LTE in new markets. It will now be looking to control its capital spending with LTE available in many U.S. markets.
…While increasing ARPU levels
This bet on LTE might work after all as Verizon has already milked the data demand enough with its 3G network. Now that the demand for data services is exploding but the supply of wireless spectrum is limited, Verizon will be looking to wrestle back control of the data plan pricing.
Offering shared data plans gives the carrier more control over how much data it can afford to offer for a particular price without straining its network. The shared data bucket will also be beneficial for many users as they will be able to use multiple devices in the same data bucket, potentially decreasing the per device costs for a family. It also allows for a more efficient allocation of resources versus earlier when a few high data users used to clog the network to the detriment of the rest.
Further, as the demand for other connected devices rises, shared data plans will make it easier for users to manage all their device plans from a single account and further spur data demand. Verizon’s recent acquisition of Hughes Telematics also shows that the company is getting serious about targeting this high-margin space where AT&T has taken an early lead. (see Verizon Picks Up Hughes Telematics For Connected Devices Push)
The shared plans would reduce customer churn as well as allow more number of mobile devices to connect to the network thereby earning Verizon more revenues than before. However, the carrier may be passing up on the opportunity of charging more per device and increasing its ARPUs even further. But the idea here seems to be that since the 4G LTE network is speedier, subscribers will eventually need to jump to the higher tiers as they increasingly use data intensive applications and connect more wireless devices to the Internet.
Further, since all the new shared data plans offer unlimited voice calling and texting, we see Verizon’s move acting as a hedge against the falling voice and SMS usage and supporting the declining voice ARPUs.Notes:
- Verizon reveals $150 20GB shared data plan, and four others, ComputerWorld, August 8th, 2012 [↩]