When the first iPhone hit the market in 2007, AT&T offered three service plans. One had 450 voice minutes per month, one had 900 minutes and the third and highest price option had 1,350 minutes – equal to 22.5 hours of chatting. All three plans also included 200 text messages. And all three also offered unlimited data usage. Reflecting the simpler Internet of the time, AT&T explained how you might use that unlimited data allowance in a parenthetical note: “email and web.”
In the almost 10 years since, wireless plans have evolved and morphed almost beyond recognition. Monthly limits on voice and texting are long gone. Two-year contracts and subsidized phones are almost gone. And AT&T and other carriers phased out unlimited data plans starting about six years ago.
For most of the years since, mobile industry executives have explained that unlimited plans just don’t make economic sense for the carriers, especially as simply surfing the Internet has expanded into all manner of apps, realtime driving directions, streaming music and video, and online games. Carriers, as they explain over and over again, own a limited amount of spectrum, or airwave licenses, thus limiting capacity for customer data usage.
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But slowly unlimited plans have been coming back, and this week they nearly took over the entire scene. Both T-Mobile (TMUS) and Sprint (S) introduced new, cheaper-than-ever unlimited data plans. T-Mobile’s new plan started at $70 for one line and went up to $160 for four lines. A prior unlimited plan ranged from $95 for an individual customer to $280 for four lines. Sprint went even lower, offering its unlimited plan for $60 to $160. Its old unlimited plan started at $75.
And both carriers said they intended to phase out the remainder of their data-limited plans sooner or later (T-Mobile said it would start next month for new customers, while Sprint wasn’t as specific).
While AT&T (T) and Verizon (VZ) have both recently rejiggered their complex, convoluted line ups of data-limited plans, the two smaller carriers said their market research showed customers growing increasingly weary–and angry–about having to predict exactly which plan would meet their needs. That’s consistent with a 2014 study that estimated U.S. Smartphone users were overpaying by $45 billion annually, largely because of the difficulty of picking the correct monthly plan in advance.
As T-Mobile chief operating officer Mike Seivert said on Thursday, it’s almost impossible to even predict how much data will be consumed by downloading a standard definition versus a high definition movie. “How absurd is it that in 2016 almost everybody on the mobile Internet is limited, and what they’re supposed to do is count up megabytes,” he said. “Nobody knows how to count megabytes…it’s fraught with confusion and complexity.”
Still, by phasing out lower cost plans with limited data allowances, the two carriers seem to be favoring data hogs and family plan subscribers over individuals with more limited needs or available cash flow. T-Mobile noted that some users might want to opt for prepaid service under the MetroPCS brand, where plans start as low as $30 a month.
Analysts offered mixed views about whether Sprint and T-Mobile would be able to maintain the quality of their networks if a crush of users switched to unlimited plans. Sprint, which has the fewest customers and the most unused spectrum among the Big 4 carriers, probably has the most headroom. T-Mobile argues that because its network has been expanding rapidly over the past two years, it has more modern equipment that can handle the load.
To learn about AT&T’s regulatory snafu with prior unlimited plans, watch:
Of course, Sprint and T-Mobile also took steps to lower the impact on their networks from the new unlimited plans. T-Mobile said customers on the new plan would get only DVD-quality video unless they paid another $25 per month for HD quality video. And tethering, or using a phone to connect another device like a laptop to the Internet, would be at super slow speeds unless a customer paid $15 for 5 GB of additional data.
Sprint allowed customers on its new plans to tether 5 GB of high speed data for free, but limited the quality not only of streaming video but also streaming music and online game playing.
The moves drew protests and whines from some of the digerati in the media and on Twitter. But, as both carriers pointed out, only a tiny minority of customers use tethering, and few could tell the difference between DVD and high-definition video on the small screen of a phone (T-Mobile said more than 99% of its subscribers had stuck with DVD quality video when given a choice under their prior Binge On program).
The ultimate question may be how Verizon and AT&T, which together serve about two-thirds of the U.S. Market, will react. In January, AT&T brought back an unlimited plan at $100 a month but only for subscribers to its DirecTV satellite video service. Verizon has made no moves on unlimited.
Customer defections among the carriers have been at record lows so far this year, perhaps feeding a sense of confidence at the larger carriers. But with a new iPhone expected soon, switching is bound to increase. And the allure of the new unlimited plans may make that seasonal rebound even larger than usual.
If the smaller carriers start grabbing a significant share of customers, maybe even mighty Verizon will be forced to embrace the end of the data bucket.
