Will AT&T and Verizon Mess This One Up for Apple?

It sounds great on paper. AT&T (NYS: T) -- the country's second-largest wireless carrier -- is on board with plans to roll out a family data plan soon. Verizon (NYS: VZ) has been talking up family data for months, and a summer rollout seems likely.

Family data plans make perfect sense. Instead of shelling out for individual data plans, an entire family would be able to share a bucket of data.

Consumers would be naive to think that this will lead to smaller wireless bills every month. AT&T and Verizon aren't in this business to make less money, regardless of how they try to frame new offerings. Their goal is to have families embrace 4G tablets, hot spots, and netbooks -- ultimately slurping down more data (and naturally paying up for it).


Kicking the bucket
Obviously, you'll never hear carriers position their inevitable family data plans as money grabbers. AT&T, after all, is the same company that killed off unlimited data plans for new accounts by shifting to a stiff tiered pricing strategy two summers ago with the following headline:

"AT&T Announces New Lower-Priced Wireless Data Plans To Make Mobile Internet More Affordable To More People"

Ralph de la Vega, the head of AT&T's mobile business, told CNET and others attending a trade show earlier this week that family data plans are coming.

The structure of the plan is already in place, through de la Vega didn't provide any specifics. Has AT&T conquered the IT and billing issues that had it leery of going this route a few months ago? Will families have to pay fees for every device on the plan beyond the bucket of bandwidth that they're purchasing? Will "rollover minutes" apply to unused data as rollover data?

"We want to make sure we get it right," he said earlier this year -- but they probably won't.

How much for that iPhone in the window?
Family data will be a matter of feast or famine for Apple (NAS: AAPL) , hinging largely on how AT&T and Verizon plan to subsidize devices on shared data.

AT&T, Verizon, and Sprint Nextel (NYS: S) are currently paying roughly two-thirds of the cost of iPhones that they're handing over to their customers. Can they continue to pay Apple an average of more than $600 per iPhone that they sell to their clients for as little as $199?

The size of carrier subsidies has been a bone of contention lately. The price consumers pay for iPhones in Spain more than tripled recently as carriers backed off subsidization tethered to long-term contracts. If family data plans grow popular, stateside wireless companies may have to rethink the math of subsidization.

Google's (NAS: GOOG) Android devices -- which typically are more lucrative to both retailers and carriers -- will have more wiggle room in a climate that finds carriers slashing subsidies for smartphone purchases.

On the other hand, if the carriers sidestep what's going on in Spain and continue to shell out chunky subsidies, Apple is going to make a killing. After all, a bucket of data will make it that much more compelling for iPhone owners to pay an extra $130 for a 4G iPad. Carriers aren't subsidizing those anyway.

The fee police
The catch -- of course -- is that AT&T and Verizon may very well decide to slap a monthly fee on every single device feasting on the bucket of data. Nothing kills a buffet like a fee per plate.

The saving grace is that AT&T and Verizon -- and hopefully Sprint and the now-confirmed bachelor T-Mobile -- will ultimately have to compete against one another for business. They can't get too greedy, though we saw how AT&T and Verizon were able to orchestrate an end to offering unlimited data plans when their network capacities started buckling under pressure.

Wait a minute. Can AT&T's network handle the increase in bandwidth that family data plans may encourage?

I guess that's yet another question without an answer.

Opportunity's calling
The next trillion-dollar revolution will be in mobile, but the carriers aren't the smart play. If you want to know how to cash in, it's all part of a new free special report that you can check out right now.

At the time this article was published The Motley Fool owns shares of Google. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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robbydek

Most of the savings will come to those people who have multiple phones that don't use up their total allowance, but use up a single line allowance. The savings isn't going to be great otherwise, it will help, but that's about it. Maybe $10 of savings a month.

It's more about being able to use multiple devices from 1 plan. Especially for AT&T, it's about getting people off unlimited data, so getting them an incentive to switch.

May 10 2012 at 8:56 AM Report abuse rate up rate down Reply
Rob

AT&T probably cannot handle the additional traffic unless they have strict limits on the family plans. My guess is they will have buckets that are smaller than the aggregate of multiple devices. IE, if you have say three device with say a 5mb cap, under the family plan for three devices you won't have a 15mb plan but a 10mb, 25mb, etc. The 10mb will likely be less than you are paying but you will need to tighten up your usage and of course the 25mb and up will cost you considerable more. In other words they will attempt to further limit the amount of data in the plan for the base level. Just my guess based on what they have done in the past. With Sprint, at least currently you don't need a family plan as the data is unlimited. How that changes in the future will be interesting.

May 09 2012 at 2:27 PM Report abuse rate up rate down Reply