Unlimited data on a mobile plan seemed like it was destined to go the way of the dinosaur as carriers fell over themselves to ditch such offerings early this year. While Sprint (NYSE:S) remained on the bandwagon (for those who were willing to pay the price), AT&T (NYSE:T) and then Verizon (NYSE:VZ) bowed out of the unlimited game. So did the country’s fourth-largest carrier, T-Mobile, at least for a while.
But now, T-Mobile is reintroducing unlimited data plans, while the fifth-largest carrier, MetroPCS (NYSE:PCS) has announced it’s dropping the price of its unlimited data plan from $70 to $55 per month.
Is T-Mobile a legitimate threat to the big players in the U.S. wireless market? For one thing, the carrier doesn’t carry Apple’s (NASDAQ:AAPL) iPhone like Verizon and AT&T do. While rumors have begun to float that T-Mobile may indeed be getting its hands on the red-hot smartphone — beginning with the launch of the iPhone 5 — moving to iPhone sales could be a mixed bag for the company.
If it can gain the right to sell the new iPhone, it does stand to pull in new subscribers and may even snag some customers of AT&T and Verizon who are looking to upgrade their iPhone 4 and would be more than happy to take a side of unlimited data with their new uber smartphone.
But while T-Mobile may have enough spare capacity on its network to offer truly unlimited data to its customers once again, iPhone users are notorious data hogs. In fact the majority of the so-called “heavy users” (the ones that AT&T was throttling all the way back to 2G speeds before killing unlimited data plans) were people armed with iPhones.
And ask Verizon what happened after it started carrying the iPhone. Spectacular sales, yes. But how many of those customers were net new, and how many were existing subscribers that upgraded, buying iPhones that Verizon had to subsidize?
As the company sold record numbers of iPhones, its profit margins plummeted. According to CNNMoney, since carrying the iPhone, Verizon’s profit margins have been in direct (reverse) correlation with profit margin. High sales led to a big drop in profit margins. But in a quarter when customers held off on buying (as they waited for the new iPhone), Verizon’s profit margins went up to record levels.
So, going back to unlimited data, T-Mobile is in a bit of a quandry. If it doesn’t offer the iPhone, the odds of gaining scads of new customers who just want an end to their data anxiety is relatively limited. If it does offer the iPhone along with unlimited data, that combination has the potential to result in a significant boost in subscribers, but at the possible cost of the kind of network congestion that overloaded AT&T as iPhone users began the era of data guzzling.
When all your customers complain about a crappy network, your reputation suffers — and existing customers are more likely to jump ship.
And what about MetroPCS? A lowered price on its limited data plan is liable to attract customers, but it’s limited to coverage in 14 metropolitan areas. MetroPCS doesn’t sell iPhones, either. So, its appeal will be limited to those who buy a Samsung or other Android smartphone on contract, or the relatively few individuals who buy an unlocked iPhone within its market.
While it’s possible that these moves will put pressure on AT&T and Verizon to reinstate some form of unlimited data plan — especially if T-Mobile also scores the iPhone — I can’t see it happening. Sprint’s unlimited plan, while more expensive, has had pretty much zero effect on it. In fact, according to The Wall Street Journal, Sprint has continued to lose subscribers while AT&T gained 5.6 million and Verizon added 1.9 million over the past six quarters. That’s despite the Big 2 carriers first throttling, then axing unlimited data.
More likely, AT&T and Verizon will launch a marketing campaign to illustrate the superiority of their data bucket plans that multiple devices can share and shrug at the loss of any data hogs who jump ship. Those customers are only going to end up hurting the competition anyway.
If anyone should be worried, it’s Sprint. It’s already losing subscribers, and with competitors challenging it in the unlimited data niche (at a significantly lower price), that’s going to put pressure on it to cut its plan costs at a time when it can’t really afford to do so.
As of this writing, Brad Moon didn’t own any securities mentioned here.