Faster and better doesn’t always mean more expensive, at least with some wireless networks.
Sprint Nextel and T-Mobile USA are readying their next-generation wireless networks, which they hope will help them take on rivals AT&T and Verizon Wireless. And if speed doesn’t do it, price could help: Sprint and T-Mobile are each keeping prices on these new services low to help seal the deal.
If AT&T and Verizon are worried, they’re not showing it. These operators, which won’t start launching faster networks until later this year at the earliest, haven’t provided details on how much their new services will cost. But recent talk about usage-based billing could mean higher prices for many consumers using the new faster networks.
Why such different pricing strategies for these new faster networks? The reason is simple. Sprint and T-Mobile need to rack up as many new subscribers as they can while they have the speed advantage.
“Sprint and T-Mobile are coming from way behind,” said Dan Shey, an analyst at ABI Research. “They need to get back in the game by locking in as many customers as they can with a faster, better wireless broadband experience.”
The situation is good for consumers, who may be looking for a taste of a faster wireless network, but aren’t willing to increase the cost of their monthly bill.
Competing on speed and price
Through its partnership with Clearwire, Sprint Nextel is deploying a 4G network that will offer consumers download speeds of around 6Mbps. Clearwire, which has been building the network for more than a year, has already deployed service in cities such as Baltimore and Houston. And later this year it will offer service in New York City, Boston, and the San Francisco Bay Area. In February, the company said it covered about 30 million potential customers, but by the end of the year, it expects to be able to provide 4G wireless access to 120 million potential customers.
Next month, Sprint is expected to be selling the first 3G/4G phone, the Evo. Sprint is the only major wireless operator selling 4G wireless services today. Clearwire and other partners, such as cable operators Comcast and Time Warner Cable also resell the Clearwire 4G service in certain markets. But Sprint is combining the service with its 3G wireless service, which gives subscribers more flexibility in where they access the network.
Sprint is now offering its 3G/4G data plans for $60 a month, which is the same price it charges for its standard 3G service plans. While the 3G service is still capped at 5GB a month, Sprint is offering truly unlimited access on the 4G network. And there are no usage limits.The company is also offering its Sprint Overdrive product for $100 after a $50 rebate. This device allows consumers to connect five Wi-Fi enabled devices to the Sprint 3G or 4G network.
While the prices are not any lower than what Sprint has already been offering customers who subscribe to its data services, the company is also not charging a premium. The idea is that Sprint is trying to encourage new subscribers to try the service without asking them to pay more for the added speeds.
“Most customers own devices that have capabilities that would be enhanced if they had a better network,” said Iyad Tarazi, vice president of development and engineering for Sprint. “Today, customers are limited by the networks they are on. So we are offering an infrastructure that can support the demand at the right price point to push adoption.”
Tarazi said the carrier is able to offer faster broadband speeds for the same price because the cost of delivering 4G service is much cheaper on a per bit basis.
“4G brings tremendous scale,” he said. “The cost drops substantially for 4G. We have a lot of head room to do more with the network and scale our costs.”
T-Mobile USA is also in the midst of a network upgrade using a technology called HSPA+, which will boost theoretical download speeds to 21Mbps. It’s three times faster than the previous generation of HSPA technology, which offers download speeds of 7.2Mbps. T-Mobile is using HSPA 7.2 throughout its network now, and it’s been upgrading to the HSPA+. So far, the service is already up and running in Philadelphia and parts of New York City, New Jersey, Long Island, and Washington, D.C.
Like Sprint Nextel, T-Mobile is using price incentives to entice customers to try its high-speed broadband services. At the end of April, T-Mobile eliminated overage charges on its popular 5GB per month data plan that costs $40 a month. It also cut overage charges in half for the entry-level 200MB plan, which costs $25 a month. Instead of overage charges, T-Mobile will reduce data speeds if a customer exceeds 5GB of usage per month.
Is the future in metered billing?
Meanwhile, Verizon Wireless, the largest wireless operator in the country, is building a 4G network based on LTE. It will launch the service in the second half of this year. The company expects to be in 25 to 30 markets by the end of 2010. The service will offer wireless download speeds comparable to what HSPA+ will offer as well as Sprint’s WiMax 4G service.
So far Verizon hasn’t announced pricing for its 4G service. But the company has hinted that it could transition to a usage based billing pricing structure, which could result in higher prices for some consumers. Today, Verizon offers unlimited data plans that are capped at 5GB per month. Overage rates are $0.05 MB.
“The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month,” said Verizon Wireless CTO Dick Lynch in an interview with the Washington Post in January at the CES tradeshow. “That isn’t long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?”
AT&T, which has upgraded its network to HSPA 7.2, won’t upgrade to 4G technology until 2011. It also hasn’t said what its pricing will look like in the future, but it’s hinted that it plans to move away from all you can eat pricing plans.
In December, Ralph de la Vega, AT&T’s head of wireless, said the wireless operator is considering incentives to get consumers to reduce their data usage. He didn’t provide specifics about how the company would actually get consumers to use less data. But he said that a usage-based pricing model may be considered in the future.
“I think longer-term, there’s got to be some sort of a pricing scheme that addresses the usage,” he said. “But that’s going to be determined by industry competitive factors, regulatory factors and customer [successes].”
AT&T has been struggling to keep up with demand for wireless-data usage on its network. The iPhone, launched nearly three years ago, has revolutionized mobile Web usage. The device, which was built more for accessing the Net than making calls, can access more than 188,000 applications, many of which use the mobile Internet.
In addition to iPhones, other smartphones are also driving more network usage. And experts believe that faster 4G networks could change usage patterns yet again. Mike Sievert, chief commercial officer at Clearwire, which is building the 4G wireless network that Sprint is using to deliver its service, said in a recent interview that early usage patterns of 4G wireless service on its network follow similar usage trends to what happened when people switched from dial-up to broadband services.
He said that when Internet service providers started offering broadband, the Internet changed from just being about e-mail and checking the weather. The faster speeds enabled a much richer digital lifestyle that was much more consumptive than what was offered under dial-up. People were doing more with their Internet connections and spending more time online.
Sievert said that faster wireless speeds are having the same effect on wireless Internet usage.
“What we’re seeing is when people are given these higher speeds, they’re finding ways to use the extra capacity,” he said.
ABI’s Shey agrees that consumers will use whatever bandwidth is available. He added that unlimited data plans often encourage more usage. Even though 4G services offer more capacity, initially these services will be limited to certain markets. Consumers will often fall back to 3G technology in areas where 4G isn’t yet available. This means that carriers such as Verizon, which has more customers than Sprint or T-Mobile, will have to be careful how it encourages customers to adopt its 4G service.
“Pricing will likely depend on the carrier,” said Shey. “It depends on how much capacity they have and how much area they cover with their faster network. They know they can use pricing as a lever to help control usage.”
Sprint’s Tarazi said that Clearwire’s and Sprint’s 4G wireless is built to handle the ballooning demand. The main priority for Sprint is to attract as many customers to the service as possible, he said. But he admitted that it’s still early days. And depending on how quickly customers fill up the available data pipes, business models and pricing could change.
“Pricing models will evolve for some carriers over time,” he said. “Usage will increase, but I think 4G innovation will also evolve to keep up with demand. In our case, we have plenty of capacity and we will continue to provide incentives for customers to use the service.”
For Sprint and T-Mobile the risk of overwhelming the network with an influx of heavy data users on its 4G and 3G wireless networks is outweighed by their need to attract new customers. While AT&T and Verizon each added subscribers in the first quarter of 2010, Sprint, which reported results last week, lost customers. T-Mobile has yet to report first quarter earnings, but it’s likely the company has also lost subscribers as it has for several previous quarters.
“Network saturation is always a nice problem to have for any service provider,” said Roger Entner, a mobile analyst with Nielsen. “The only thing worse than an over-saturated network is one that is under-utilized.”
