US Telecom Data Pricing (and DISH…of course)

17 Mile

US Telecom Data Pricing (and DISH…of course)

September 5, 2016


DISCUSSION

(Short write-up, more akin to the note-taking found on the Scratch Notes page.)

The debate about the value of DISH’s vast spectrum holdings centers on the following dynamic: is the US telecom spectrum ‘crisis’ severe enough to push the Big 2 (Verizon and AT&T) to ‘play ball’ with DISH before DISH’s 2020 spectrum build-out deadline(s). But this dynamic misses – almost entirely – the argument Charlie Ergen has been making now for years: the true value in DISH’s spectrum holdings lies in the fact that the industry will look vastly different 5-10 years from now.

There is no spectrum crisis under the industry’s current construct. And DISH has explained ad nauseum the build-out deadline(s) are not an issue, as in a worst-case scenario they spend $3 billion to meet the minimum requirements. As such, time is likely better spent discussing future industry dynamics and how Charlie Ergen may or may not be out of his mind…

MONTHLY “TMT” BILL

For an American “DINK” (Dual Income, No Kids), a monthly “TMT” (Technology, Media, Telecom) bill could look as follows:

Verizon

  • 1 ‘Medium’ 4GB data plan: $50

Time Warner Cable

  • Internet: $70 ($65 promo normalized by $5)
  • Video: $65 ($60 promo normalized by $5)
  • Total: $135 (compare to full triple play at $130 promo…)

Streaming Services

  • Netflix: $10
  • Hulu: $10
  • HBO GO: $7.50 ($15/month used for 50% of the year)
  • Amazon Prime: $10
  • Total: $37.50

Total TMT bill: $222.50/month

(I make no attempt to depict the average US monthly TMT bill down to even the nearest ten dollars, let alone the nearest couple. Too many moving parts. But the above should at least be in the ballpark, particularly on a relative basis as shown below.)

Percentage Breakdown

  • Phone data: 22%
  • Internet: 31%
  • Video: 29%
  • Streaming: 17%

In light of the various rapidly changing industry dynamics, it’s interesting to observe the end-user experience of the current TMT landscape via the lens of the monthly bill. Two observations: 1) it is easy to see how streaming services can be considered complementary to the traditional cable bundle video product at only 17% of the monthly bill; 2) it is (yugely?) surprising that the Telecom industry gets a nearly free pass on its data pricing practices. Consider…

A 4GB Verizon plan costs $50 per month versus unlimited data from Time Warner Cable for $70, and comprises 22% of the monthly TMT bill. For a family of 4-7 people, that $70 TWC bill remains fixed and performance does not suffer; whereas the Verizon data bill would quickly escalate to the ‘Large’ plan of 8GB + 2GB/line for $70, or the ‘XL’ plan of 16GB + 2GB/line for $90.

As an outsider observer I could be wrong…but I believe this data pricing dynamic is precisely what Charlie Ergen is attacking with his spectrum strategy and referring to in comments regarding future industry structure. The traditional cable bundle more than likely will continue to bleed subscribers until Millennials reach a fuller employment rate and/or the cable companies become a bit more technologically savvy and creative on the pricing side (I believe Charter will lead this charge, FWIW); but I believe Telecom profitability is in far greater danger, as consumers begin to rethink locking themselves into a capped data plan for almost the same price as their monthly Internet bill for unlimited data + nearly-everywhere wifi.

RECENT DEVELOPMENTS

Two WSJ articles regarding recent industry data pricing moves and my notes on them:

T-Mobile, Sprint Bring Back Unlimited Data (WSJ 8.18.16)

  • T-Mobile will stop selling monthly data packages
  • Sprint dropped the price of its unlimited data plans
  • AT&T is offering unlimited data to TV subs
  • T-Mobile and Sprint lower the quality of data for all users on unlimited data plans
  • AT&T and Verizon lower speeds to 2G for those who exceed their data caps
  • New T-Mobile plan costs $70/month for 6GB, or $160 for a family of four for 24GB

T-Mobile, Sprint Unlimited Plans Are Full of Limits (WSJ 8.30.16)

“Take T-Mobile. The carrier said Monday its T-Mobile One plan is ‘a radically simple subscription to the mobile internet at one low price’ with ‘unlimited everything.’ The carrier’s website is decorated with an oversize infinity sign.”

“But the more than 450 words of fine print on T-Mobile’s site describe the caveats. Video is delivered at a lower quality, internet speeds might get throttled after using 26 gigabytes in a month, and if a device is turned into a Wi-Fi hot spot, a practice known as tethering, it could be slowed.”

“Sprint launched its “Unlimited Freedom” plan in mid-August with limits on video, music and gaming streaming. On Friday, the company added “Unlimited Freedom Premium,” which is $20 more a month and allows for higher quality streaming than the original offering.”

“For the smaller carriers, these new “unlimited” plans are also a subtle way of eventually raising prices. They start at $60 or $70 a month, and the companies say they might eventually eliminate cheaper options with limited data.”

CONCLUDING THOUGHTS

At present, the consumer is in a bit of a box from a telecom standpoint. The smartphone is now such an integral part of everyday life that everyone ‘needs’ one – thus everyone ‘needs’ a data plan. And as the second article above indicates, it is only a matter of time before the Telecom industry locks in this monopolistic position by raising the minimum monthly data charge. But capitalism should take care of this via the Cable industry’s wide open ‘wifi everywhere’ opportunity. No, the wifi coverage while on the move is not comparable to the mobile networks LTE coverage; but in buildings, there is almost no need to utilize phone data.

The Telecom industry can continue to ‘in-fill’ its coverage with small cells, convert legacy spectrum to LTE, and wait for game-changing 5G technology; but the former two options only keep up with current data usage, and 5G is several years away at minimum. As such…

…All roads continue to point to the need for significantly more mobile network capacity in order to offer the type of data plans that can compete with the Cable industry’s monopoly on high quality, unlimited data.

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