Unlimited data plans won't affect big carriers' revenue in the long term: analysts
Unlimited data plans will not affect revenue growth for big telecom carriers, equity analysts say, in contradiction to a new PricewaterhouseCoopers report says by the end of 2020 new plans will eat into revenue growth with the reduction of overage fees and the price per gigabyte.
Rogers Communications was the first to introduce unlimited data plans starting at $75, matched by its competitors Bell and Telus in June 2019.
Before unlimited plans arrived, carriers were able to make up costs associated with a customer using more than their allotted data through overage charges.
PwC’s report said that in 2017, five per cent of the industry’s sales were made up of overage fees, or $1.4 billion. In 2018, that dropped to 4.5 per cent, or $1.2 billion.
The report said that with the introduction of unlimited plans, overage revenue will decline to one per cent, “cutting roughly 80 per cent of overage fees by the end of fiscal year 2020.”
“This accelerated reduction in overage fees will likely reduce the average revenue per user (ARPU), and will result in lost telecom industry revenue from overages in the range of $1 billion per year by 2020,” the report said.
Dave Heger, an analyst at Raymond James, said the statistics weren’t surprising, nor concerning because overage fees were reducing before unlimited plans were announced.
“Many people were upgrading to plans that had higher allocations of data, and that helped them avoid overage charges,” he said. “That trend, if you look back at 2017 and 2018, attributes to [overage charges] over time coming down. What we may see now is an acceleration of that trend.”
In the past couple of quarters, Rogers, Bell, and Telus have each acknowledged that overages will diminish over time. Heger said that in the near term this loss will affect service revenue growth.
“We’re starting to see that, again Rogers, probably [will] be the hardest hit because they’re the most aggressive in terms of moving to unlimited... and their service revenue has declined year-over-year in the last couple of quarters,” he said.
Rogers’ chief financial officer Anthony Staffieri said in the fourth quarter earnings call that service revenue declined by one per cent because of a reduction in ARPU, which was a result of a reduction in overage fees.
But he noted that “the year-over-year rate of decline in ARPU in the fourth quarter is already starting to improve compared to Q3 as overage declines slowed and more customers came in on Infinite plans.”
In Q4, Rogers said that there are 1.4 million customers subscribed to its unlimited data plans. Heger previously has said that more customers are expected to pay more and upgrade to unlimited data plans as 5G becomes available to consumers.
Heger said that carriers will likely be able to offset the overage revenue loss with more customers upgrading and paying for higher-priced unlimited plans.
Matthew Dolgin, an analyst at Morningstar, said that initially, with the introduction of unlimited plans, Rogers will see its ARPU stagnate.
“My projection right now is kind of around flat for Rogers in 2020 on the ARPU line,” he said. “But over the long term, it’s not something that I think is going to have a big negative effect on the industry.”
Dolgin couldn’t say what the carriers would be able to do to offset the loss in service revenue but that he expects it “to be made up over time, naturally.”
“I think just natural revenue growth from standard core sources will make up for that within a couple of years,” he said.
