For years, AT&T (NYSE:T) and Verizon (NYSE:VZ) have had a very good thing going when it comes to data plans. Subscribers either bought too much data and paid for something they never used, or they did not buy enough and ended up paying the overage fees.
So last week, T-Mobile (NASDAQ:TMUS) announced its latest Un-Carrier initiative to fight such practices, with Sprint (NYSE:S) quickly following suit. As it turns out, the third and fourth place carriers see an advantage in unlimited data plans.
In this episode of Industry Focus: Consumer Goods, Vincent Shen and Daniel Kline offer the essential details behind the unlimited offerings and how they might force changes across the industry. They also look at exactly what unlimited means and which carrier has the best deal for consumers.
A full transcript follows the video.
This podcast was recorded on Aug. 23, 2016.
Vincent Shen: Moving on to our next topic here, I think we're going to talk about somebody else who's often in the headlines, usually for more positive reasons. This is our favorite "underdog" in the wireless carrier space. That's T-Mobile and their recent push to move all of their plans to unlimited, right?
Dan Kline: When I watched this press conference, I went, "Oh my god, this is another move where T-Mobile is just slapping AT&T and Verizon in the face and saying, 'I dare you.' You want to charge overages? You want to charge all this money? You want to not offer unlimited plans? Here we go." What was interesting is, during the press conference, John Legere, the CEO of T-Mobile, he took a swipe at Sprint, and said, "I can tell you what Sprint's going to do. Six months from now, they're going to copy us." The reality is, Sprint almost immediately came out with a pretty similar offer
Basically, both companies are offering unlimited plans where a family of four can each get a line, unlimited data with some caveats, for $160. How they bill that $160 varies. Sprint is cheaper if you're just getting two or three lines. T-Mobile becomes cheaper after four lines. But, essentially, they're both pushing family plans with $160 for four lines, unlimited data.
Shen: You mentioned some caveats. This is something we were talking about previously, because essentially, there are some people who are such large consumers of data, they put a cap on that.
Kline: T-Mobile spells it out the most clearly, but both companies have policies in place. T-Mobile basically says, "To our top 3% of users, people that use over 26GB in a billing period, when needed, we will slow your service down," meaning they're not going to cut them off, they're not going to say, "You can't use it, you can't buy in." But at times that you or I, regular users, are looking to have high-speed data and the network is being stressed out, the absolute top tier of data hogs will get throttled. So, it does put an asterisk on "unlimited," but the reality is, for most people, this is not a factor.
Shen: So, your view, in the next year or two -- we've seen some of their other Un-carrier initiatives from T-Mobile push the leaders here, Verizon and AT&T, to emulate them, or at least do something to respond.
Kline: I think eventually, they're going to get there kicking and screaming. Verizon has started advertising a four-line family plan for $150, where maybe you get 3G of data each, or something like that. But if I can get unlimited, and the networks are pretty close -- Verizon is a little bit better on most surveys, but T-Mobile is very close, and Sprint is not that far behind -- why am I going to pay more money for a tiny bit better network with big limitations and overages or having to buy a bigger plan than I need just so I don't go over?
So, you've seen AT&T and Verizon slowly inch their way toward the T-Mobile model. And it might take another year, it might even take two. But eventually, just like it happened with minutes, and just like it happened with text messages, the default plan is going to be unlimited. And then, of course, AT&T and Verizon will find some other way to charge overages for something else. Maybe it'll be virtual reality content, or holograms. Who knows? I remain confident that however this spells out, AT&T and Verizon are going to find a way to charge more money.
Shen: I want to end this segment, just to give our listeners a little bit of perspective here. T-Mobile right now definitely still has quite a bit of runway. T-Mobile and Sprint are No. 3 and No. 4, respectively, they're at about 60 to 65 million subscribers, as of the second quarter of this year. Verizon and AT&T double those numbers -- Verizon has 143 million, almost, AT&T, almost 132 million. And for the second quarter, actually, Verizon, AT&T, and T-Mobile all managed to generate net subscriber additions with T-Mobile leading that pack with almost 1.9 million additions. Sprint was the one loser, they had about 360,000 net losses.
But, to give you an idea, again, T-Mobile has shown a lot of momentum, I think, in the last couple years, eventually passing Sprint and continuing to widen that gap.
Kline: Yeah. It's also worth noting that T-Mobile, in moving into No. 3, has been adding phone customers, traditional postpaid phone customers, while AT&T and Verizon have been adding connections, people who already have an account, or maybe don't, adding an iPad or some other tablet. So, it's a huge gulf between T-Mobile and AT&T and Verizon. But they're gaining faster than you would expect. And I think it's nine, maybe 10 quarters where they've added over a million subscribers. So, it's going to take a long time for consumer habit.
There is a built-in market perception that AT&T and Verizon are better because they've told us they're better for a very long time, and until very recently, they were better. But now that that's not so much the case, you might see a point where consumers just start shopping via price. And when that happens, AT&T has the ability to use DirecTV, to use its broadband service, other things to make packages better, which could ultimately be good for it. Verizon has that to some extent, but it doesn't have a national brand like DirecTV. So. This is going to get interesting, and the pricing is going to come down, which is good for consumers.
Shen: Yeah. When it comes down to it, if you're in a major city, population center, you probably won't notice a big difference. It's really when you get out of those areas that, I think, especially Verizon and AT&T really shine in terms of offering a little bit better coverage.
Kline: I'm a T-Mobile customer, and the only place I've ever noticed a service problem was rural New Hampshire. I could get a Sprint signal, I could get AT&T and Verizon -- or the people who were with me could -- but I had to use wireless calling. Given that they offer wireless calling, if you have Wi-Fi, you're pretty much covered with T-Mobile, as long as you're not going to spend a ton of time in a rural setting.
Shen: I will make sure to keep that in mind, especially with my fiancee. She has T-Mobile. We'll stay out of rural New Hampshire. Thanks for that tip.