Speed and Compression-Based Data Tariffs – Will Consumers Bite?
Brad Akyuz, Executive Director ;
Consumer Electronics Connected Intelligence
Commoditization of Cellular Data has been a major theme discussed throughout the year as unlimited data plans have become the de facto offering in the U.S. mobile market. We have seen the same commoditization trend with voice and SMS in the past two decades, as mobile carriers first sold voice minutes and SMS in various size packages, but they were eventually thrown in for free when we started paying by the size of our cellular data bucket.
In the past year, every postpaid and prepaid carrier has jumped on the unlimited bandwagon, and even though more than half of the market is still on bucket plans, the unlimited data plan adoption keeps going up thanks to falling service prices. This is a troublesome scenario for mobile carriers, because cellular data is the main source of network monetization and offering unlimited data at discounted rates could result in continuously declining service revenues. Luckily, carriers seem to find an answer to this problem, and 2018 will show if this strategy has legs or not.
In essence, mobile carriers have taken a page out of cable operators’ playbook and are modifying their service plans based on data speeds, necessary for a no-buffer streaming service, or compression, which impacts image resolution. Every carrier now offers tiered unlimited data, where consumers opting to pay a premium enjoy benefits such as high-resolution video streaming, larger throttle limits, and smartphone tethering. AT&T (and its prepaid arm Cricket) even offers tiers based on download speeds, just like cable operators’ broadband internet pricing schemes.
With over two-thirds* of smartphone users regularly streaming video on their devices, 80+ percent* of the data traffic (cellular and Wi-Fi combined) is generated by video apps. Furthermore, we are seeing a massive uptick in demand for phones boasting large displays (nearly half of the smartphones sold in the U.S. market in 2017 had a screen size of 5.5” and larger) and as the screen size increases, streaming/viewing quality will be adversely impacted when data is compressed. With entertainment (TV and video) becoming the centerpiece of mobile push, we expect carriers to heavily market the benefits of access to high-speed or non-compressed (1080p+) resolution available on premium unlimited data plans in 2018.
*Source – NPD Connected Intelligence SmartMeter – Q3 2017