Can AT&T's "Sponsored Data" Stop the Bleeding?

AT&T wants apps to pay for the data its users data usage. Will this alternative billing stop subscribers from leaving?

Jan 8, 2014 at 12:30PM

AT&T (NYSE:T) is bringing the heat in 2014. On the heels of its aggressive incentive to get people to switch from T-Mobile (NASDAQ:TMUS), the company announced its plans for "sponsored data" on Monday, which will allow high-bandwidth services to pay for mobile data usage.

The plan is an alternative to unlimited data offered by smaller carriers T-Mobile and Sprint. Ma Bell seems to think it will keep its subscribers from defecting.

It's an interesting plan to be sure, but you have to wonder why a company like Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), or Netflix -- the companies that make the most popular and bandwidth-intensive apps -- would pay AT&T when other carriers don't ask them for a thing.

Who's going to use this service?
The idea that Google will pick up the tab so you can watch YouTube videos is great, but Google would need to be making money on the deal. Google would probably need to significantly increase its CPM for advertisements in YouTube for it to be worthwhile. Sure, it might collect some extra data on its users, but people are already using YouTube on their phones -- so there's plenty of mobile data coming in.

At launch, AT&T has partnered with UnitedHealth Group, mobile marketing company Aquto, and cloud computing company Kony. These companies aren't making apps that smartphone users will use in mass. The latter two are targeting businesses, while UnitedHealth will pay for consumers to access mobile health apps and websites -- not very data intensive.

"Sponsored data" lends itself to advertising, and this is how AT&T envisions the service being used. Movie studios could make trailers available without penalizing the consumer's bandwidth usage, or companies can offer a teaser of a high-bandwidth app. But consumers generally don't like being advertised to, and the "sponsored data" logo may create a new form of "banner blindness."

Facebook could be an exception
If any big mobile company takes AT&T up on its offer, it could be Facebook. The company has numerous deals in place with wireless carriers to offer Facebook access without counting it toward a customer's bandwidth usage. The most recent deal was with T-Mobile's prepaid GoSmart MVNO.

With other wireless carriers, though, Facebook doesn't foot the bill for the extra data use. Now, AT&T expects the company to pay for the same privilege on its network.

AT&T's subscriber base is much, much larger than any carrier Facebook has made a deal with in the past. Unlimited access to AT&T's 100 million-plus subscribers could be worth it, if it continues growing its average price for mobile ads. Additionally, Facebook is more likely than YouTube or Netflix to sponsor data for its users because it doesn't use nearly as much bandwidth as the video services.

Facebook would be a real coup for AT&T, and could be the tipping point for AT&T's plan to catch on. If Facebook starts offering its users free data, its competitors will be compelled to do the same. That's a big if, though.

AT&T is being conservative with data
AT&T is really struggling in the face of T-Mobile's "uncarrier" initiative. It has resorted to copycat strategies, but it seemingly won't budge on its data-caps. If sponsored data doesn't take off and gain the support of key companies like Facebook, AT&T may continue to lose phone subscribers as it did in the third quarter last year.

T-Mobile, meanwhile, will gladly offer unlimited data to its subscribers as well as free data for Facebook on its small MVNO. As a result, the company is growing phone subscribers faster than any other major wireless carrier, and AT&T might be too conservative to stop it.

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4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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