Cellular data usage has become subject of contention among consumers, carriers and federal regulators. Consumers want more data with less restrictions at manageable prices. The carriers want the opposite. The federal government is left to balance consumers' rights with spectrum allocation, bandwidth requirements, net neutrality and mergers that may disrupt the ecosystem.
There are a lot of balls in the air. It is likely that there will not be any type of compromise between the interests of these groups any time soon. Carriers are starting to set bandwidth limits into their data plans and throttling users who exceed those limits. The data plan needs to evolve.
Scenario: Families' Data Plan Headache
Imagine that you are a parent trying to balance your budget. You have a teenage son and daughter (let's call them twins for sake of argument) and the family is fairly well off, perhaps upper middle class. There is money, it just needs to be managed between the mortgage, old school loans, the car, household utilities and the ever growing web of data plans for every member of the families devices.
Mom and Dad both have smartphones and some type of tablet on a data plan. That is four data plans between them. Then, let's say each of the twins has a smartphone and they share a tablet. That is seven data plans for a four-person family ranging from $15 to $30 per device. That is not outrageous for a well-off family in a connected world, especially as smartphones and tablets continue to penetrate the market.
But every member of the family does not use their devices the same way. For instance, Mom uses a lot of data because she travels a lot for business and likes to download and stream movies and upload pictures. Dad uploads the occasional picture but really uses his devices mostly for email and checking up on the news. Between them, the twins use a fair amount of data between social networking, pictures and watching short videos. Mom often exceeds her data limits while Dad comes nowhere near his. The twins come close to their monthly data allotments, sometimes under or over. Regardless of the usage, the family is paying each month for those seven data plans.
Carriers Want To Increase ARPU
The carriers like it like this because the average revenue per user is high. Yet, it drives Mom and Dad crazy because they have to manage all these disparate bills and the fact that they are not reaching maximum return on investment for data not used. It is confusing and expensive.
This is a system that needs to change. One way to do it would be to block a set amount of data for the entire family that can be used between every device, with unused data rolled over into the next billing cycle.
In this scenario, there is one data plan for the seven devices. Let's call it 15 GB per month, slightly less than 2.5 GB per month per device, which is basically what the average data plan between Verizon, AT&T, Sprint and T-Mobile is currently, with fluctuations between each carrier. That 15 GB can be allocated to the family as a block and spread between the devices. One plan, one bill, less headaches. There will be months where Mom is not traveling and streaming as much content and the family will come in well below that number. Or perhaps they go over on a month. The family should not be throttled or forced to pay for extra data depending on the circumstances of the month if they have unused data from another month.
The carriers will hate this. Data is the new version of text messaging, which was the new version of voice minutes. It is the cash cow for carriers because they can set the plans and rates in such a way to maximize ARPU. The last thing that the carriers want to be are "pipes" that are just conduits for data usage through block data plans.
Content and The Pipe: What The Carriers Want
The carriers want to grow their networks. That means they want more users with more data plans on faster networks that handle data flow better. That is what is happening as smart devices proliferate and "4G" such as LTE comes to maturation. The more user that have data plans on multiple devices and the more efficient the network itself becomes, the higher the margins for the carriers.
Yet, the carriers are in a fight over content, ostensibly the source of data usage. When a user streams a Netflix movie over their iPad and stay within their data limits, the carrier does not make any more from that user. From the carrier's perspective, they are just the "dumb pipe" that delivers the over-the-top content. In their minds, that is unacceptable.
That is why you are seeing more carriers trying to throttle usage while also setting up their own content delivery networks. AT&T's U-Verse is a prime example. If the carriers can make money both from the data being used and the content going over the network, they are making money on the same data flow twice. In a blocked data plan scenario, this would be less lucrative.
Regulators Sticky Issues
The AT&T-T-Mobile merger puts a lot of this in to perspective. The Department of Justice thinks that if the merger goes through, the three remaining major carriers can do just about anything they want. Seven data plans for a family of four? Certainly! Let's charge more for every GB they use and then throttle them or make them pay more if they go over. The DOJ thinks that the carriers could collude to increase prices without actually intentionally doing so. All it takes is for one carrier to start increasing data prices and the others will follow, calling it "industry standard pricing."
But what if T-Mobile were to stay free? To compete with the bigger companies, they institute data blocking plans with rollover of unused GBs per month. That is precisely the type of competitive practice the DOJ thinks will be inhibited in a three-carrier ecosystem.
Change Will Come For The Carriers ... Eventually
Regardless of whether or not the AT&T-T-Mobile merger is approved, data plans are going to change in the future. The carriers are going to try and squeeze as much revenue as they can from each user, until they face a backlash from both consumers and the government.
It is probably inevitable that the carriers are going to be caught between regulators and users and be forced to change data plans to something that is more consumer friendly. Yet, the next several years will see data plans become more expensive, overage and throttling more frequent and consumers feeling the strain.