Unlimited data hits limit in US market

Sara Kaufman/Ovum
25 Jul 2011

Verizon Wireless this month announced that it was ending its unlimited smartphone data plans for new customers and launching five new tiered data plans.

This announcement follows AT&T’s move in June 2010 and T-Mobile’s move in April 2011 to introduce tiered data pricing. This shift away from unlimited data plans in the US is an inevitable necessity for most US operators. It is also a step towards operators freeing themselves from flat-rate tariffs that harm profitability and limit their ability to generate incremental revenues.

The prevalence and acceptance of household tariffs in the US provides operators with a well-established model on which they can build more dynamic plans for customers. US operators are well positioned to move users from a one connection per subscriber model to a connection-based model that unifies multiple connections from multiple devices under a single subscription.

The shift away from unlimited plans is less a matter of choice for US operators than it is an absolute necessity. With unprecedented growth in data consumption and significant congestion on mobile networks, operators are finding that the cost and volume of data traffic is growing disproportionately to revenues.

In the US, voice and text messages were originally charged per minute or per message. They then matured into capped buckets of minutes or messages, then into bundles, and ultimately settled as cheap flat-rate or unlimited plans. However, data tariffs in the US have essentially evolved in reverse. Eager to acquire new data customers and encourage interest in smartphones and data-only mobile broadband devices, US operators introduced unlimited data pricing from the beginning.

Although operators succeeded in attracting significant numbers of users to take up data services, unlimited plans that offer no upsell opportunity have stifled revenue growth opportunities for data. As US consumers’ appetite for data increases, the cost of carrying that data on operators’ networks also increases. However, unlimited plans provide operators with little or no opportunity to upsell as operators have already given away everything.

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