Commentary

With Wireless Data Gains, Who Needs Tiered Pricing?

laptop

Doing something on wireless data so an image of fiber optic cable or someone using laptop or e-reader via a wireless connection would work.

AT&T and Verizon may be bitter rivals, but first-quarter earnings from the telco titans this week showed both are now deriving a third of their revenue from wireless data services. AT&T continued to reap the benefit of offering the iPhone exclusively, with 2.7 million activations in the quarter, accounting for a third of new customer sign-ups.

But the nation's No. 2 carrier also touted its broader connected-devices strategy, with the number of smartphones, e-book readers, and other mobile machines increasing by 1.1 million to 5.8 million. The company's splashy new "Rethink Possible" ad campaign underscores the shift from voice calling to powering a variety of wireless data services.

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All that helped AT&T generate a higher wireless operating income margin -- 29.9% versus 26.9% in the year-earlier period. Verizon's wireless margin also increased (by 0.7%) to 28.9% as the company added 1.5 million net new wireless customers in the quarter, along with 7.3 million data connections to other devices including e-readers and GPS devices.

Verizon also placed a big bet on mobile media during the quarter by shelling out a reported $720 million on a four-year deal with the NFL to distribute live games via mobile starting next season. So while the carriers are investing huge amounts in upgrading their network infrastructure and content offerings, they're already booking financial gains from the surging demand for mobile data access.

Nevertheless, both companies have suggested this year that a shift toward tiered pricing on data services is inevitable to curb usage by the heaviest bandwidth-users. In AT&T's earnings conference call Tuesday, CFO Richard Lindner was more circumspect in discussing tiered pricing when asked about it.

But he mentioned factors that would justify the step -- including limited spectrum, increased demand from new devices and applications (hello, iPad), and disproportionately high use from a minority of users.

"So that's kind of the whole thing on data pricing, and it will, I suspect, evolve as we go forward in the industry -- and it'll evolve as applications and devices continue to evolve and data traffic continues to grow," he said. That's a whole lot of evolution, but how pricing will change isn't clear.

If AT&T and Verizon were losing money hand over fist on wireless services it would bolster their arguments for usage-based pricing. But that's not the case -- they're making more than ever from their wireless units and getting better margins. And trumpeting those gains to investors. So what's to complain about?

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