NEW ANALYSIS: From shared plans to sponsored services, Joss Gillet of GSMA Intelligence finds the US market a hotbed of mobile data innovation.
Since the launch of the first 4G-LTE network in the US in Q3 2010, the country’s operators have been aggressively transforming their device portfolios and data tariffs to embrace the high-speed mobile internet revolution. AT&T Mobility’s introduction of sponsored data services at CES earlier this month is a further step in that direction, and one likely to come under rigorous regulatory scrutiny.
The US is by far the world’s largest 4G market in terms of connections, with 100 million 4G connections due to be reached in the first half of this year, up from 80 million in 2013. Verizon Wireless and AT&T were the two largest 4G operators worldwide in Q3 2013, standing at 36 million and 21 million 4G connections, respectively. Verizon announced earlier this week that it activated a further 9 million LTE devices in Q4 2013, taking its total to around 42.7 million.
US mobile operators were able to rapidly deploy 4G networks following the early allocation of digital dividend spectrum in 2008, reaching close to nationwide coverage in 2013. Verizon, for example, said this week that it had “substantially completed” deployment of its 4G LTE network, covering more than 99 per cent of its current 3G network footprint.
Along with operators in other ‘digital pioneer’ markets such as South Korea and Japan, aggressive 4G network rollouts allowed the US operators to rapidly rationalise their device portfolios around the newer network technology. At the time of writing, 88 per cent of all smartphones on offer at Verizon are 4G-enabled compared to 69 per cent a year ago, while the proportion of 4G smartphones at AT&T increased from 74 per cent to 78 per cent over the same period. The latter is still offering a compelling portfolio of 3G-HSPA devices even though it recently stated that its “traffic on HSPA+ has peaked and is on the decline.”
The shift towards 4G-centric services has been a major contributor to the increase in data traffic. In Q3 2013, Verizon Wireless said that 64 per cent of its total data traffic was running on its 4G network, up from 35 per cent in Q3 2012. Last October, AT&T also stated that its mobile data traffic is on average six times the amount of voice traffic on its mobile network; it noted recently that total traffic over its mobile network increased by more than 30,000 per cent between 2007-12.
As mobile data traffic continues to expand and competition intensifies, mobile operators have had to differentiate their value propositions and find ways to monetise data services in order to balance increasing expenditures and safeguard long-term margins. The first tactic was to structure data tariffs based on data consumption, therefore removing the effect of ‘unlimited’ data access that was prevalent when 4G first launched. For instance, AT&T offers 12 different packages with monthly data allowance ranging from 300MB ($20 per month) to 50GB ($375 per month).
Furthermore, Verizon introduced in June 2012 its ‘Share Everything’ plan, followed by AT&T’s ‘Mobile Share’ plan a month later. These plans allow users to share a single data tariff and data allowance across several devices (up to ten at Verizon) – a model already successful in some of the most advanced Asian markets. As of Q3 2013, Verizon claimed that 42 per cent of its contract base had subscribed to a shared data plan, compared to 22 per cent at AT&T. The latter explained that it reached 16 million connections on its Mobile Share plan across 5.3 million accounts, which translates into “an average of about three devices per account” (2.72 at Verizon), while 30 per cent of AT&T’s Mobile Share accounts chose 10GB or higher plans.
Earlier this month AT&T went a step further and announced the introduction of sponsored data for mobile data subscribers and businesses. This data service allows companies to promote online content by paying for the mobile data usage costs. For instance, a healthcare insurer could decide to promote a video in its mobile application which would then be marked as ‘sponsored data’ and when the customer clicks the icon to play the video, the data usage incurred while watching the video is not deducted from the customer’s monthly data allowance.
The service aims to increase data usage and revenue, while offering marketers an innovative way to engage with consumers who in turn get access to ‘free’ content.
However, AT&T has faced criticism that its sponsored data service might create an unfair situation whereby the largest companies could potentially incentivise customers to use their content sites rather than go to smaller firms that are unable to cover data costs to the same extent. The FCC Chairman, Tom Wheeler, reacted two days after the announcement explaining that if this new service “interferes with the operation of the internet, that if it develops into an anti-competitive practice; that if it does have some kind of preferential treatment given somewhere, then that is cause for us to intervene.”
Competition is intensifying in the US where Verizon and AT&T jointly control just over 80 per cent of the country’s 4G connections base. This has meant that rivals such as T-Mobile US have had to look for innovative ways to disrupt larger rivals.
Under its ‘Uncarrier’ initiative, T-Mobile is looking to incentivise consumers to churn from larger networks by offering contract-free services and free international data roaming; by paying-off customers’ early termination fees; and by introducing a phone upgrade plan – branded ‘JUMP!’ – that allows consumers to upgrade their phones twice a year. As a result, T-Mobile noted in early January that it registered close to one million net additions in ‘branded’ customers in Q4 2013, and close to half a million MVNO net additions.
T-Mobile’s MVNO partnership with Solavei is another example of an innovative business model being tested in the US marketplace, one labeled as ‘the world’s first social commerce network’. Solavei launched in July 2012 and has since signed up “more than 250,000 new members” as of November last year, thanks to its refer-a-friend business model. Solavei’s users can earn money by referring it to their social network, along with other advantages such as its cash-back shopping programme.
Top five largest 4G-LTE operators worldwide, Q3 2013
Source: GSMA Intelligence