Tele2 NL, KPN, T-Mobile US show value of a GB falling quickly

Monday 16 November 2015 | 12:38 CET | Market Commentary
Tele2 Netherlands has announced new mobile plans, designed especially for use on its new LTE network. KPN announced almost at the same time an offer for 100,000 rural households to use LTE as a replacement for the fixed line. And T-Mobile US unveiled its Un-carrier X offer 'Binge On', offering unlimited data for video streaming. All this points to a strong decline in the value of mobile data, underlining the need for continued innovation and cost controls in the mobile market. 

The details:

  • Tele2 NL: the plans come with unlimited calls and SMS, which Tele2 has priced at EUR 10 per month. This puts the price of the accompanying data at EUR 6 for 1.5 GB, EUR 11 for 4 GB, EUR 15 for 8 GB and EUR 25 for 24 GB. The largest bundle results in a price per GB of EUR 1.04 (T-Mobile was previously the cheapest on the Dutch market with a unit cost of EUR 1.54 for a GB). The incremental value is even lower, at 62.5 cents per GB (92 cents at T-Mobile). This is based on the cost of moving from the second-highest data plan to the highest. At Tele2, the additional cost is EUR 10 for another 16 GB, or 62.5 cents per GB. 
  • KPN: the LTE offer is for 100,000 homes in rural areas, out of around 500,000 difficult to provide fast broadband over the fixed network. Customers can subscribe to the LTE offer if they're unable to receive a least 6 Mbps over the DSL network. The offer comes with a data cap, the same as in the mobile market, with 10 GB costing EUR 32.50 per month and 50 GB at EUR 50 (EUR 1 per GB). After using up the monthly allowance, the speed drops to 64 Kbps. TV is not part of the offer (but could be added later if LTE Broadcast is deployed).
  • T-Mobile US: Binge On offers zero rating for streaming video, the same as the operator already offers for streaming music ('Music Freedom'). The offer is available only for customers subscribing to at least 3 GB per month. T-Mobile has rejected concerns about net neutrality, noting the service is open to any streaming service to join. Binge On will start with popular subscription services like Netflix, HBO, Hulu, Sling TV (Dish) and Crackle (Sony), but YouTube was not mentioned. The videos are compressed to 480p.

We see these developments as a further sign of the quickly depreciating value of a GB.

  • Tele2's prices are around 30 percent lower than at T-Mobile, and the company is likely to come with further reductions. Within a few months it could introduce 30 GB for EUR 27.50, bringing the price per GB down to 92 cents and the incremental price to 50 cents.
  • KPN is offering a tariff at similar levels. This is needed in order to ensure the fixed-line replacement service is not exorbitantly expensive. There is a risk of cannibalisation, which is minimised by locking the Sim card to the router so it can be used in a phone. The service is also limited to a small number of customers.
  • T-Mobile US shows there is clearly no issue of network congestion. Mobile operators often use this as an excuse, but offering unlimited video streaming suggests there's no question of such a problem. 

The value of mobile data is plunging due to competition (Tele2 joins the Dutch market as the fourth operator), fixed-line replacement (KPN) and a strong focus on the consumer (T-Mobile US). Only collusion could keep the price level high. The European Commission is likely following the developments closely, and Tele2 NL may be held up as an example of why market consolidation and fewer operators creates a risk for higher prices.

The developments suggest we haven't yet seen the bottom. The same as voice and SMS, mobile data is becoming a commodity. This makes the focus on innovation (such as IoT) and cost savings (eg network sharing) all the more important for the mobile sector.

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