Data allowances are increasing, demand is at an all-time high, and the price per GB is spiralling downwards across most developed markets – great for consumers, but are operators in a race to the bottom where the final destination is unlimited free data?

At MWC Shanghai earlier this year, Telstra’s CEO Andrew Penn told a rather surprised audience he believed retail data charges would hit zero within the next ten years and operators would be forced to seek alternative methods to make money.

A bold forecast, but when you look at the average price per GB since the launch of 4G, you sense he may have a point.

Taking the UK as an example: shortly after EE’s launch of 4G in 2012 a SIM only deal cost £26 ($34.23) and would give consumers unlimited calls and texts alongside 1GB of data. By comparison, at the time of writing the same monthly SIM only fee offers EE customers unlimited calls, texts and 22GB.

Assessing the US, when Verizon scrapped its unlimited data plan in 2011 it charged $30 for 2GB, $50 for 5GB or $80 for 10GB complete with a handset – according to a CNN report at the time. With the same operator in 2017, $80 would get you unlimited everything with a device.

Industry experts Mobile World Live spoke to said – almost unanimously – they thought the data plan would not die totally, but operators needed to look at new revenue models as prices per GB look set to continue their steady decline.

Partnerships
“Data packages are becoming more generous and that’s something that’s only going to happen more as we go forward,” Kester Mann, principal analyst for operators at CCS Insight said.

“I see data heading the way of voice and SMS – where they are largely inclusive. While there’s still value in data now, in five to ten years it will be interesting to see if they [prices] are creeping towards the zero point.”

To compensate for the falling data price, Mann added operators could look to be “cleverer” and differentiate by offering tailored packages at a lower price than unlimited: “If operators can customise packages to specific customers they could differentiate.” This could be through content, use of roaming, bundling or other items based on the customer’s usage.

IDC senior research analyst Laura Petrone believes some operators have already struck partnerships which could make content-based packages with cheap connectivity an option – though this is reliant on net neutrality rules and resale fees.

“Some operators could probably make this work,” Petrone said, adding: “Especially those that have already gone a long way towards building up a strong position in content and are also able to sustain big investments.”

“But for most, it would mean reselling someone else’s product while giving away their own.”

Exact Ventures lead analyst Greg Collins believes the continued high cost of spectrum would make the free data model unviable, though that could change if there is a marked shift in the cost of providing connectivity.

“Wireless networks are extremely capital intensive and the cost of the spectrum is too high, at this point, for there to be a profitable high speed mobile service that gives away the connectivity for free.”

“In the future, if the cost of spectrum comes down or is eliminated and the costs of purchasing, deploying and supporting radio access networks come down, it may be that content, advertising, consumer analytics, etc…can support a ‘free’ model.”

The 5G effect
However, 5G could change everything.

At the dawn of LTE, many operators charged a premium for the new data service, so will the same tactic work for maximising 5G network value?

One of the problems may be how good existing 4G is and how evolved versions of the technology cope with the current data demand. At the dawn of 4G, many operators marketed the new technology as being an improved experience – especially in eliminating buffering for video.

As things currently stand 4G is possibly too good, so the real world case for an upgrade may be harder to find – in turn making a premium charge a tougher sell.

Graystone Strategy director James Gray said: “The economics of providing 5G will make it difficult for mobile operators to drive costs low enough to make moving to 5G tempting for users. Increasingly price sensitive consumers won’t stand for price rises and will stick with 4G.”

Mann expects first movers in 5G to be able to charge a premium, depending on the specific market, but – as with 4G – this advantage may be short-lived: “At the beginning the early operators will launch it as a premium service. Over time as more and more people get to use it, it will probably come down in price,” he told MWL

Only time will tell how 5G consumer tariffs play out and if data becomes uniformly unlimited or even free.

However, what seems clear from the level of diversification and partnership currently taking place in the industry, is many operators are actively looking away from just connectivity and formulating a plan B in case it does.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.