Why AT&T's Double Data Plan Is So Brilliant

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AT&T has launched a new deal for current and prospective users: Buy a new phone and a data plan greater than 15GB through Oct. 31 and AT&T will automatically double the data. While this may seem like another aggressive pricing antic that will lower the company's revenue per user, it is actually quite brilliant for AT&T in many different ways.

AT&T is protecting what's most important
It's hard not to notice that AT&T's "Double the Data" plan launched less than two weeks after the iPhone 6 and 6 Plus models. AT&T is highly reliant on iPhones to drive revenue and subscriber growth, as 52% of the phones that AT&T sells are iPhones according to Counterpoint research firm.

Meanwhile, companies like Sprint and T-Mobile rely far less on iPhones for total sales -- 30% and 38% respectively, although both companies have been highly competitive with pricing over the last year. Therefore, AT&T has the most to lose with the iPhone 6 and 6 Plus launch, specifically with the threat that users might switch to a competing carrier, which likely aided in the creation of Double the Data.

Source: AT&T

According to research firm Kantar, the iPhone's U.S. market share was 32.5% in the second quarter. However, according to Statcounter, the iPhone's market share of data usage tops 50% in the U.S. This shows that iPhone users tend to consume more data than on competing smartphones. As a result, AT&T's decision to market its high data plans following the iPhone 6 and 6 Plus launch appears aimed at keeping and attracting new data consuming iPhone users. In other words, AT&T is trying to protect what's most important to its wireless business, the iPhone.

Not to mention, the timing of this new plan is strategic. Apple  sold 10 million iPhone 6, 6 Plus units in its opening weekend. Therefore, AT&T was going to capitalize on this initial rush. Now, AT&T's Double the Data plan targets customers who haven't yet upgraded their iPhone but will soon.

What makes Double the Data brilliant
All things considered, AT&T's decision to double data was wise in an attempt to protect its iPhone market share and keep demand high following the initial iPhone rush. However, what makes AT&T's move truly brilliant is that it makes users feel as though they are getting a deal, all while forcing an upgrade.

Throughout 2014 AT&T has aggressively cut prices on data plans. It has cut Family Share plans by an average of $15 for its 2GB and 5GB plans. The company has also launched a 10GB shared data plan for $100 a month, plus $15 extra to add a line. A family of four with 10GB of shared data will pay $160, a price that AT&T claims is $100 cheaper than a comparable plan from Verizon.

The problem is that by cutting costs so drastically, well below Verizon, AT&T's average revenue per user will decline. Analysts at BTIG estimate that AT&T's service revenue will decline at a 5% annual rate by the end of 2014. Meanwhile, with similar subscription growth, BTIG expects Verizon's revenue to increase at a mid-single digit rate. The difference, according to BTIG, is the price cuts at AT&T.

That said, NPD estimates that the average iPhone user consumed about 1.35GB of data per month at AT&T in 2012. The data analytics company Arieso estimates that iPhone data consumption rises 20% to 40% annually. If accurate, data consumption per user is still well below 2.5GB in 2014 at a 30% annualized growth rate.

This means that with AT&T's new Double the Data plan, boosting data up to 30GB for $130 a month, a family would need about 13 people on a plan to consume the data. At that point, users would have to pay $15 per line, just like the Family Share plan, in addition to the $130 for data.

Source: AT&T

Therefore, AT&T is presenting 30GB of data for $30 more than its 10GB plan. However, unless a user has a dozen or so family members on a plan, the data will be very difficult to consume. This means that AT&T might have just found a way to increase the user's bill, or increase their prices, while giving them the illusion of a fantastic savings plan. It's brilliant!

Foolish thoughts
The end result of AT&T's Double the Data plan, depending on demand, could very well be an increase in revenue per user as data goes unused. What makes the move brilliant is that it not only presents users with a deal that looks too good to be true, but also complements the release of the iPhone to protect AT&T's best-selling and, most important, smartphone.

With all things considered, analysts who have been critical of AT&T's price cuts have commonly expressed concern that it'll be difficult to raise prices in the future. However, with Double the Data, AT&T shows one way of raising prices without the user actually noticing it. Therefore, unless dealing with large corporate users or families of 10 who essentially live on their smartphones day and night, AT&T should come out on top by doubling the data.

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The article Why AT&T's Double Data Plan Is So Brilliant originally appeared on Fool.com.

Brian Nichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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