With the combination of SoftBank, Sprint (NYSE:S), and Clearwire now complete, the No. 3 domestic carrier is cementing its strategic position with consumers. The company has been aggressively pitching its unlimited data plans over the past few years as a key point of differentiation from its rivals. Sprint is now guaranteeing its new unlimited data plans for life, hoping you stick around for the long haul.
CEO Dan Hesse notes, " While other wireless providers are moving away from unlimited service, Sprint champions it." The unlimited guarantee extends through the life of the line of service. The rate isn't guaranteed, so Sprint could change pricing in the future.
Larger carriers AT&T and Verizon Wireless have already switched to tiered pricing for data plans, while smaller "Un-carrier" T-Mobile offers unlimited data but throttles data back to 2G speeds after a certain threshold. Truly unlimited data on the magenta carrier costs quite a bit extra.
Sprint's big bet on unlimited data isn't without downsides. Mobile data usage continues to skyrocket to unprecedented levels. Strategy Analytics estimates that worldwide smartphone data usage will jump from 5.3 exabytes last year to over 21.5 exabytes in 2017. For reference, 1 exabyte is over 1 billion gigabytes.
That precipitous rise will put a strain on global networks, and carriers will need to beef up capacity along the way. That's precisely why most carriers have tried to transition to tiered pricing -- in order to foot the bill for those costly infrastructure investments. Rising mobile data usage is also an opportunity for revenue upside for carriers with tiered pricing. By sticking with unlimited, Sprint's primary way of growing average revenue per user will be just simply raising rates.
Since the guarantee is valid for new and existing lines of service right now, it could still potentially shift away from unlimited data plans eventually and just leave grandfathered all-you-can-eat customers.
Fool contributor Evan Niu, CFA, owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.