The decline of unlimited mobile data plans

Unlimited mobile data plans are growing scarcer. Find out why and what comes next.

I was recently intrigued by a couple of articles by the Washington Post and RCR Wireless which discussed mobile wireless plans and how they are evolving.

The Post article discusses how 2-year carrier contracts are falling by the wayside, discounted prices for phone hardware will diminish in the future (meaning higher equipment costs) and how the sale of mobile data is really the bread and butter of carriers - something that has been evident for some time.

The RCR Wireless article takes a look at the fate of unlimited data plans, pointing out that carriers are seeing reduced profit margins when providing unlimited data but show better revenue with capped family plans: "Family plans are more sustainable than unlimited individual plans because they depend on generationally driven usage patterns and in-home/in-building Wi-Fi established connectivity habits. The shift from usage to breakage, even with Rollover/Data Stash plans, paves the way to family/shared plan sustainability."

In addition, the CEO of T-Mobile, John Legere, recently railed about "thieves" that are consuming an inordinate amount of data on unlimited plans - up to 2 Tb per month - which are yet capped at 7 Gb of data use for tethering.

This issue isn't about increased expenditures on the part of carriers to handle voice and data services; it's based on the fact data usage among users and businesses is steadily going up, which should come as no surprise. It speaks to me since I have a shared monthly 4 Gb data plan with my wife, which we have lately come close to maxing out due to roaming during the summer on vacation. We've just barely squeaked by, in essence, without incurring additional charges.

I spoke over the phone with Robert Oberhofer, vice president of product marketing at ItsOn, Inc. Oberhofer has worked in the mobility field as an engineer and product manager since the late 1990's and holds a Ph.D in Digital Signal Processing. He works for ItsOn, a mobile service provider located in the Bay Area. We discussed how carriers need to create more dynamic, personalized offers and options to become more attractive to the highly-targeted market segments they're intent on pursuing. ItsOn has worked with carriers including Sprint and Virgin Mobile to successfully test and deploy contextual/segmented customer offers, so Oberhofer has in-depth experience with the roadmap ahead for carrier service plans.

"I guess carriers are going to have to add some other incentives to keep customers happy now that unlimited data plans are falling by the wayside?" I inquired.

"Right. It's an economic reality, in a way. Unlimited data becomes very hard to sustain if the data use continues to grow at a rapid rate," Oberhofer said. "Building out capacity in the wireless space has certain limitations because you have to build towers. You have to build them closer together, and that's not easy, fast or cheap either. As you can imagine, going through the city permit process to get a new tower in the right spot is a challenge. Not every city wants to have more towers because there's a perception that too much wireless is not a good thing - but everyone complains if there's not enough coverage or the network is slow. That's a challenge for carriers. They have to find ways of making it economically viable - the best way of doing that is by moving away from unlimited. Sprint in the early days was successful in getting a lot of new customers using unlimited, but they are now going away from that perspective and so is Verizon. T-Mobile has this system of unlimited data but not entirely high speed - once you reach a certain cap of high-speed data you go down to a lower rate. Capacity isn't a problem on the voice or text side - that volume is going down since there are so many messaging apps out there. Voice and text is the inverse; that is going to unlimited, but for data it's not feasible for carriers to continue to offer unlimited."

"This jibes with what I've seen first-hand whereby messaging apps such as Facebook are starting to replace texting or voice calls," I said. "But that comes at the cost of higher data consumption. Data pipes are getting hammered; people are bringing more and more devices online; there is this sense of always needing to be connected. It's not just among technologists. I'm an IT guy so I geek out, but my wife is a physical therapist and she's constantly in touch with her office to check up on patients and plan treatment, so it's been part of a technological and a cultural shift."

"Being connected anytime, anywhere is the new reality," Oberhofer agreed. "If that's what your expectation is, if you're not connected or the connection doesn't work the way you expect, it becomes frustrating. And so that's why carriers are investing massively to make sure the network looks good and performs well - but then if it performs well, usage goes up, so they have to make it economically feasible. As you're probably well aware, a small minority is using data in an extensive way, but that minority is growing more and more. It's often the younger people who are so used to being connected all the time and are using more data. As the millennial generation is growing up, and they are used to using data, it's difficult for carriers to offer unlimited plans."

"Do you have an estimate when the unlimited plans will fizzle out?" I asked.

"I think Sprint probably will be the last one to move away from those. The question is how long will people hold onto their existing plans and when will they move onto new ones? The carriers will try to entice people to move onto data limited plans, either when the contract expires or the users want to change an aspect of their contract. The thing is, not everybody actually needs or uses unlimited plans. It's often more of perception of not being limited - a psychological perception for people to want to hang onto the plan. You said you and your wife sometimes get near your data limit; for myself it's quite the opposite - I had an unlimited plan for quite some time, but I didn't need it. My actual use per month for the last 8 months was always less than 1 Gb. I switched away from the unlimited plan since I didn't need it. I'm on T-Mobile and if I want to go back [to unlimited], I can. I'm not penalized if I go to a lower plan. People have a perception of not wanting to deal with inconvenience if they do go over their limit, which is why unlimited is attractive. Some people use data extensively - videos, media, etc. - they could probably could benefit from unlimited plans. But these users are being subsidized by others who are not using a lot of data," Oberhofer said.

"Do you see some carriers raising rates on unlimited plans to try to compel people to move to capped plans?" I queried.

"I suspect they will try to put in some form of limitation. Even with the unlimited data plan after a certain volume there are certain restrictions they will put into place. T-Mobile, for instance, offers unlimited 4G plans but customers who use more than 21 Gb in a billing cycle will 'have their data usage de-prioritized,' meaning they will experience slower speeds. Carriers are afraid that people will use the mobile wireless network the same way as a fixed-line or Wi-Fi connection at home. That puts a lot of strain when people watch a lot of videos, Netflix, video streaming, etc. Wireless carriers are struggling with that. That's not what the business model has been set up for. Young people are cutting the cable cord - they're using their wireless connection for entertainment needs instead of cable TV."

"What will carriers do to sweeten the deal for consumers if they reduce unlimited plans to make it more attractive to retain customers?" I asked.

"The convenience of unlimited data is a big consideration. A lot of people don't need it - they WANT it so they don't have to fear about hitting the limit and being restricted or see charges they're not aware of. The concept of 'bill shock' is very real - we've interviewed families where the kids have different behavior patterns than the parents and consume data in uncontrolled ways because kids are used to consuming a lot of media on their device and may not necessarily know the difference between being at home on Wi-Fi and being on the mobile network. They incur lots of data consumption and parents are often not aware of this, but they are often surprised by what's on the bill at the end of the month. That is a major aspect people don't like about wireless services. So, there are different ways of treating with and interacting with the customer where you give them a choice and they can opt into whatever the next level of charges may be. If your son or daughter consumes a lot of data and incurs a large bill, wouldn't it be cool to hand out data in chunks - to allocate 1 Gb or 2 Gb to your son or daughter for instance? In that scenario, you can control it and parcel it out as needed. It's a nice way of educating the children about consumption. Not a lot of carriers have built tools to do that, but providing these tools and making it easy for the family to manage their plan in a way that should take seconds is something that can be very powerful.

Other things we're seeing: bundling data with zero-rated services or applications. For example, T-Mobile is offering as part of their data package something called "Music Freedom." As long as you have a data package you can get certain music services - most of the major ones like Spotify, Google Play, Pandora, etc. - as part of your data plan but they don't count against the bandwidth you use. Data itself is separate. This takes away some of the fear of needing more data. That's a trend that we see more and more - internationally as well, where carriers are interested in bundling certain applications as part of your data plan. You have a 500 Gb data plan with a social package. Or if you have international roaming only for certain relevant apps, others may be blocked so you don't have rampant use of roaming data. These kind of value-added propositions are what carriers are really thinking and talking about with us."

"Do you think there will be the option for consumers or businesses to restrict the use of certain apps on mobile data plans?" I questioned.

"Yes, there is definitely interest in that. We call it split-billing and carriers and businesses are interested in this. Businesses would pay for business-related data and apps. Unrelated data and apps would be handled and paid for by the end user. The challenge is to put the technology in place that can differentiate which app belongs to which bucket. To enable that you need technology with those capabilities on the device. ItsOn is working with this as well. Carriers are struggling to do that based on the technology in the network. It's actually pretty challenging."

"Is ItsOn working on an application which can achieve this?" I asked.

"ItsOn has two parts for this, including a technology stack that sits on the device. That stack has the ability to differentiate which application generates which type of traffic. The enterprise can sponsor certain apps and the consumer pays the other portion. This can be powerful for the carrier to offer data plans for certain applications. It can be part of a 1 or 2 Gb package, and can be interesting as well for offering a special roaming package. Let's say I'm going to Europe, and I will pay $2 per day for the use of essential travel apps; email, WhatsApp, and Facebook. Everything else is blocked so I'm not incurring usage such as downloads from Google Play, which can be quite significant. By enabling only certain applications it's much easier for carriers to offer a fixed price per day rather than by volume. That's what users ultimately want when it comes to unlimited data - they want a predictable price with no surprises. That's the main reason people don't like roaming- you don't quite know in advance what the cost of your activity is," Oberhofer said.

"Can this model work for company-owned or employee-owned devices?"

"It could be both - to enable the advanced usage cases you do need something on the device, but it won't happen automatically," Oberhofer said.

"What else do you think would be interesting to tell my readers about the future, upcoming options, things to look out for, etc.?" I asked.

"The trends that we're seeing and the conversations we're having with carriers is they want to find ways of adding value beyond voice, text and data. They want to provide a better use experience. It is strange that in today's world, where wireless carriers enable all these new experiences and new ways to purchase things on the device at any time, to purchase wireless services you are still forced to go to a store or call somebody up. That's really strange; the industry that provides and sells you the phone doesn't have a good app to allow you to upgrade/downgrade/adjust your plan. Or to inform you while roaming elsewhere: "here are relevant plans you can buy" - a roaming package for the week, for instance, which you can purchase on your device. The reality is, you have to call ahead, think about it and figure out what the different options are; how much data you will use. It's very complex and very confusing. They need to bring that level of convenience to the end user and allow them to be informed on the device when something is relevant to them - for instance if you are 80% into your data plan but you still have 10 days in your plan; perhaps you might want another 500 Mb if convenient instead of upgrading the plan. They do have alerts on data plan usage now, but they need something more comprehensive. Forcing to upgrade or go to a store is inconvenient for the user. That's the conversation we're having with the carriers. They know they have to move towards this model and they're in the process of figuring out how to make it happen. They need to remove the fear of being overcharged with unwanted activity that consumers weren't informed on during the month. Sending a text to consumers when they've gone over their data plan so they can call up to dispute the charges is not convenient for the customer. This type of thing is happening industry-wide," Oberhofer said.

Unlimited plans will be phased out, but other benefits and conveniences are sure to take their place as carriers compete to provide the strongest options for customers.

See also:

A conversation about 5G with inventor of MIMO

Windows 10 updates potentially costing users on data-capped internet plans

FreedomPop: Bringing you free voice, data and text

Pro tip: set a cellular data limit to help avoid overages