Market Insight

AT&T experiments with two-sided business model with sponsored data

January 08, 2014

Jack Kent Jack Kent Director, Media and Advertising

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US operator AT&T plans to launch a sponsored data program to let content providers subsidise the cost of data for consumers. Data charges from sponsored data are billed to the sponsoring company rather than being taken off the customer's data cap. AT&T has stressed that sponsored data will be delivered with the same speed and performance as non-sponsored data.

AT&T said the program could be used by content providers to encourage customers to try a new app, promote movie or game trailers, browse shopping sites, and to allow businesses with a "bring your own device" policy to pay for data that employees use on specific business related apps and services.

Operators have talked about enabling this sort of two-sided business model for data charges for several years. The concept is very similar to the freephone numbers that companies can already purchase from operators. IHS sees sponsored data as particularly useful for monetising price conscious prepay customers, as well as beneficial to those with limited data plans.


Several other versions of this model have been tried in the past. Facebook and Google have launched various operator partnerships in less mature mobile markets where the aim for operators has been to demonstrate the benefits of mobile data to first time users and Facebook and Google get to capture a new audience, with monetisation coming much later. Operators in countries such as the Philippines, Indonesia, and Nigeria have also pushed content and service-specific data plans to help offset the threat of declining communications revenues and the rise of over-the-top services. In these markets, operators offer data plans that provide "free" or unlimited access to a range of social networking, communication, and messaging apps that is separate from the customers' wider credit or data plan. Samba Mobile, a UK virtual operator uses a similar ploy where customers can earn free data by watching adverts.



Sponsored data gives AT&T another path to generate revenue from its mobile data traffic. Traffic is growing hugely thanks to the smartphone explosion and spurred on by the higher data speeds of 4G. IHS estimates that global mobile data traffic nearly doubled from 2012 to 2013. With operators also facing declining voice and SMS revenue, substantial increases in data revenue are required to maintain their level of profitability.


As the mobile content market has shifted firmly towards the freemium model, sponsored data services could provide a useful differentiation tool for content providers looking to attract an audience amongst the mass of competing apps and services. However, given the low margins associated with many content services (e.g. music and video), the hits driven nature of the mobile games business, and the struggle for monetisation for many communications centric services, it is likely that only established providers with deep pockets will be able to take advantage of AT&T's initiative. For most content companies, data costs are simply too high to make a sponsored data service profitable. Ad-supported services such as video could take advantage of these plans in the future, but for now data costs are too high; the data cost of streaming video over a mobile network is in almost all cases going to be higher than the associated ad revenues a content provider can expect to generate. IHS discussed the role of operator data partnerships and other content monetisation strategies in its recent report: Monetising Mobile: Strategic Content Trends and Best Practices.


The move has raised concerns that it will lead to a reduction in competiveness among content providers. If sponsored data becomes widespread, then it would represent a significant barrier to entry for new app developers when the major players are rich enough to offer their content free initially. While AT&T said sponsored data will be delivered precisely the same as non-sponsored data, it would not be a huge leap to include quality of service differentiation with sponsored data in the future. This could distort the market even more particularly for online video services and VoIP services.

Nonetheless, IHS believes like freephone numbers, this business model is here to stay. However, IHS expects it will be highly regulated and some services may not be allowed to exploit sponsored data to its fullest in the future.

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