Suppose you have a 5 GB monthly data plan from your cellular carrier. If you're a light user, you probably don't surf enough Internet to consume it all.
Now, one carrier is offering to refund the data that you don't use every month, in hopes of attracting budget-conscious customers willing to try something different.
By asking customers to pay up front for their data — and then crediting their accounts if they use less than their share — Raleigh-based Republic Wireless is betting against larger network operators who charge customers the same monthly rate no matter how much of their monthly data allotment they use.
Under that type of business model, "you end up wasting about a third of what you're paying for every month" in unused data, said Republic Wireless chief executive David Morken. "If you added that up, that's a huge amount of billed but never-provided service."
Republic's new plans, whose prices were not announced Monday but will roll out in June, is the latest in an ongoing war among wireless carriers over pricing and customers. The wireless industry has long grappled with how to handle voracious data users who go over their monthly limits — imposing fees or slowing down their mobile Internet speed. But now, their attention is increasingly turning to customers who are more conservative in their data use, offering people incentives to consume less or to switch to WiFi.
Other carriers, such as AT&T and T-Mobile, now allow customers to roll over any unused data into their next billing cycle, effectively giving them more data to work with in a given month if their consumption was lower in the previous month. But Republic spokeswoman Cherie Gary said nothing speaks more loudly to consumers than cold, hard cash. Under the new plans, Republic will calculate the value of a customer's unused data and add that money to the customer's account, which can be used to pay for the next month's bill. Or, the money can be sent to the customer's credit card if the customer decides to drop Republic.
What Republic Wireless is doing is actually part of a long-established tradition: charging customers for only what they use. It's not unlike a prepaid plan where you put some money down and then deduct the cost of your usage from there. But when asked why Republic didn't simply implement a true pay-as-you-go model, Morken said consumers tend to react badly to per-minute or per-megabyte billing.
"[Those] plans instill a huge amount of fear in subscribers because of bill shock," Morken said. "Most consumers, in study after study, hate the uncertainty."
Republic is a small carrier with several hundred thousand customers that piggybacks on Sprint's network. It's best known for its WiFi-first business model, which routes as much voice and data traffic over WiFi before using the cellular network. That strategy allows Republic to operate for less money, which in turn allows it to offer 3G-enabled service plans for as little as $25 a month.
Analysts have spoken highly of Republic's model as having the potential to change the entire wireless business. If it can prove that WiFi calling and limited cellular usage can work, Republic could upset the traditional strategy of selling access to a large and costly cellular network.
Add in Republic's new offer of a refund for not using cellular data, and its customers will have even more incentive to stay on WiFi. If that idea spreads, it could have major implications for the rest of the industry.