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May 10, 2013

Thought Leadership for the Wireless Industry
In This Issue
The Emergence of BYOP
DISH-Sprint Could Usher in a New Broadband, Content Era
Hello all,
Just as we've all started to understand the impact of Bring Your Own Device (BYOD), the term might already be a bit of a misnomer. I think we're seeing a more fundamental change in wireless, toward what I call "Bring Your Own Plan". Read below for what this means, and its impact.  

Also, I'll be at the CTIA Show in Las Vegas May 21-23 and would love to catch up. Please email me if you'd like to schedule a meeting.
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The Emergence of "Bring Your Own Plan" (BYOP)

Bring Your Own Device (BYOD) has been a big buzzword in the wireless industry. It started in the enterprise market, when people using employer-supplied Blackberries wanted the option to use the smartphone of their choice. Over a three-year period, the iOS and Android ecosystems improved their security capabilities, IT departments in most companies relaxed their security requirements, and a slew of "device management" companies emerged to help manage the transition.


The BYOD wave has now spread in earnest to the consumer market, having grown out of a confluence of circumstances: 
  • Consumer frustration with long-term contracts, and the steady increase in early termination fees and other airline-esque penalties for wanting to serendipitously switch carriers or devices.
  • The proliferation of advance-pay and prepay options. There's now a broad choice of plans, offering good phones, using good networks, for significantly less than postpaid plans.
  • Operator fatigue with the subsidy model
  • A robustly competitive market, anchored by the rebirth of T-Mobile/Metro, Wal-Mart's Straight Talk service, and the under-recognized impact of prepaid powerhouse TracFone (20+ million subs).

Enter the BYOP Era


All that said, I think BYOD is a bit of a misnomer for what's occurring. What we're really seeing is the emergence of the "Bring Your Own Plan (BYOP)" era in wireless. The catalyst, really, is the steady migration to a structure where voice and text are unlimited, and subscribers pay for a bucket of GB. Data is the new currency.


BYOP actually boils down to two choices the consumer has to make:

  1. The "Device Procurement" choice. If they want a subsidized device, then they go down the traditional contract road. Otherwise, their options multiply, and include equipment financing, paying full retail, or BYO a new or pre-owned device.    
  2. The "Data Plan" Structure Choice. Unless you're looking for a very inexpensive feature phone plan, the era of paying for voice and texts is over. It's really about the data structure.

    1. Individual or Group. The "Share" plans ONLY make sense for a family/group with three or more smartphones, and/or 1-2 tablets requiring mobile connectivity.
    2. # of GB 
    3. Network speed. We are rapidly seeing price dividing lines revolving around network speed. The more affordable $~50 plans are often on 3G or lower-end 4G (i.e. Not LTE) networks, and/or involve only limited data allowance on the higher speed networks (a more marketing-savvy approach to "throttling). Affordable, "Unlimited" data plans almost always come with an asterisk.

The network speed variable is an interesting one. With this move toward BYOP, plus the intensely competitive environment, data throughput is one of the few levers the operators still have. As long as they have the leadership window in LTE coverage, Verizon and AT&T are using LTE as a form of market segmentation, positioning it as a "premium" service for mainly postpaid subscribers. Straight Talk, which uses primarily Verizon's network, and AT&T's recently announced Aio prepaid service, are examples of aggressive pricing plans using 3G/3G+.


What Does This Mean?


One word to describe what the industry is going to start looking like over the next couple of years: frothy. Intensifying competition and the new BYOP structure means that subscribers are going to start switching devices and plans more frequently. The U.S. market has always been a bit unique with respect to the percentage of subscribers who are postpaid vs. prepaid, and the percent of subs who are on some form of family/group plan. I expect, over the next 2-3 years, a gradual reduction in the number of postpaid, "family plan/share" subscribers as a percent of the base. These plans still make lots of sense for certain profiles, but I believe 20-30% of this segment of the market will be "in play". The early success of T-Mobile's "un-carrier" approach is an indicator. It will be even more interesting when we learn where some of these subscribers are coming from.


Second, with device procurement options multiplying, I think there's going to be a very interesting sweet spot for smartphones in the $200-300 price range for those who don't want to go the subsidized, postpaid route. Increasingly good Android and Windows-based phones at those prices, plus the expected less expensive iPhone will be the catalysts here. Services such as Aio and StraightTalk, which trade network speed for value, will extend the life of devices such as the iPhone 4. I also expect growth in the market for certified pre-owned devices - and concomitant opportunities for those in the insurance and warranty business.


Third, with data being the "new currency", I think there's going to be great opportunity for a la carte data connectivity options. Operators should sell SIM packs, prepaid cards, gift cards, and online refill options, for data connectivity: $ per GB, or session-based. This is incremental revenue opportunity for smartphone subscribers who have maxed their data use in a given period, or for users of other connected devices, such as tablets, who have a need for "occasional" cellular data connectivity.


As users become accustomed to the "data is currency" model, expect the wireless operators to offer spot "sales" tied to promotions. "Buy the new LG XYZ and get 5 free GB of data" type of thing. There will also be all sorts of opportunities for sponsored or advertiser-supported content (today's press report about ESPN offering toll-free data being an example), or a Kindle-like model of connectivity bundled into the price of content.


Finally, amidst all this 'froth', I believe we are seeing the beginnings of a bubble in the $40-60 "unlimited" segment. There is simply a huge choice of postpay/advance pay/prepay options in this range. There are at least 10 options for the sub who wants to bring their own device and spend $50 a month for unlimited voice & text and 1-2 GB of data. There are even multiple brands of the same operator, or brands using that operator's network, competing here. I believe that with the recent addition of Verizon and AT&T (Aio) into this space, this will represent the "peak" of these rather look-alike plans, and over the course of the next 6-12 months, there will be some shakeout.


And with prevailing data prices still in the ~$10 per GB range, there is plenty of opportunity for a "disrupter" and disruptive business models. Which is what Messrs. Son and Ergen are fighting about, and why you'll see Amazon, Google, and others offer some flavor of "connectivity" at some point in the future.


DISH-Sprint Could Usher in a New Era Broadband, Content Era
Among the wave of M&A that has swept the wireless industry in recent years, I believe DISH-Sprint offers the most intriguing possibilities for innovative service and business models.

1) Fixed broadband services in the U.S. are relatively slow, uncompetitive, and expensive. With significant spectrum holdings, future benefits of LTE-Advanced, and the deployment of heterogeneous networks, the traditional dividing line between fixed and mobile broadband could blur. What might this look like in 3-5 years?

2) Even though DISH looks likes a cable operator, there's enough going on in OTT-land that there's likely to be disruption and growing alternatives to the prevailing content distribution model. Ergen is the sort of maverick who could disrupt the current content distribution framework with a more a la carte approach to programming, with mobile assets a key part of this.

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