Share Everything – It's Not As Bad As You Think

By Chad Henage - July 2, 2012 | Tickers: T, S, TMUS, VZ | 0 Comments

• Email
• Print

I have to admit when I first heard about Verizon (NYSE: VZ) and AT&T's (NYSE: T) plans to change their calling plans to concentrate on wireless data usage I was concerned. These two companies aren't run by dumb people, if the plans are changing there has to be a benefit to the companies. I've heard in passing that each company wants to get more devices using data on their networks to improve profits. In addition, since data usage is one of the primary reasons the two companies build out their next generation networks, it makes sense to tie pricing, to data usage. What's interesting is it turns out after running the numbers, that consumers might actually be happy with these changes.

It's no coincidence that analysts are expecting EPS growth of nearly 11% from Verizon, and almost 10% from AT&T during a time where data usage is growing. Having worked for AT&T for 5 years I can tell you a little about how the behind the scenes of the wireless industry works. First, don't be fooled, these companies are overjoyed when a new customer signs a two year contract on a smartphone. I've written about this before, and the bottom line is, no wireless company is having trouble with profitability with these smartphone contracts. Even using the Apple iPhone as an example, the carrier still makes plenty of money. If the carrier has to pay a $450 subsidy on a 16 GB iPhone 4S, and pays $300 commission to the retailer that sold the 2 year contract, they still make money. Since each smartphone is required to have both a calling and data plan, I've figured out that it takes about 8 months for the carrier to break even. With a two-year contract, that still gives the carriers 16 months of profits. The new plans are designed to generate more income, by charging an incremental fee to allow additional devices to use the same data plan. The best way to get a handle on these plans is a real life example. 

Below is what my family has on our plan currently with the corresponding costs, versus what the costs would be on the Share Everything plan:

I've rounded the numbers a bit to make the comparison simple, but as you can see for my exact situation the new plans will be beneficial in three ways. First, the monthly cost is actually $10 less. Second, we would have unlimited calling instead of 1,400 minutes. Third, since all the phones can share the data. Actually to keep the pricing the same, we could stay at the $200 a month, and move up to the 4 GB of data for just $10 more a month. So why is Verizon doing this, and AT&T expected to follow?

To be blunt, both companies don't want you to stay within your plan. What they really want is for you to decide to tie more devices to your data plan. The more devices the carrier can get you using on their network, the more profitable this becomes. The reason is simple, the network has to be up and running all the time no matter what. It's what customers have come to expect. This means each additional device equals additional revenue to the carrier. While it's true that the companies will have to build out their networks further if customers truly take advantage of this capability, network deployment is something that all carriers have to accept as a way of life anyway.

What Verizon and AT&T are ignoring are, users who don't want data limits. That is where Sprint (NYSE: S) comes into play. For an individual who wants unlimited data and texts, but isn't on the phone a whole lot, Sprint might be a better value. With Verizon, the best option would cost about $100 ($40 for phone access and $60 for 2 GB of data). However, for $79.99 on a smartphone plan with Sprint, this individual would get unlimited texts and data and 450 minutes. That is a potential savings of $20 a month, and the individual doesn't have to worry about their data usage. The other user pool who are being left out are customers who don't care about data, but they do send texts. With Verizon's new structure, their best bet is $40 a month and paying $0.25 per text. This is a case where smaller wireless players like MetroPCS (NYSE: TMUS) could swoop in and steal some subscribers. With a $40 a month plan with unlimited talk, text, and data, this represents a compelling value. This shift is shown in estimates for MetroPCS, where analysts are expecting nearly 18% growth in the next few years.

So what the heck are consumers to do? To be honest, look at your bill and consider what is the most important to you. These plans from Verizon would seem to encourage people to drop their home phone service in a hurry. After all, if you can talk on your cell phone as much as you want, why have a home phone? If you're a data heavy user and don't want to have to worry about caps, than Sprint is still the best game in town. If you just want calling and texts than MetroPCS could be a good fit. The good news for consumers is, these plans aren't as bad as they could have been, and if you don't like the new plans, you still have plenty of other choices.

• Email
• Print
• Feedback