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Summary:

This morning I chatted with Glenn Lurie, president of national distribution at AT&T, about the carrier’s strategy to embed wireless access into anything that isn’t a smartphone, netbook or PC. He said AT&T is working to find pricing models that may include prepaid data plans (we […]

LurieThis morning I chatted with Glenn Lurie, president of national distribution at AT&T, about the carrier’s strategy to embed wireless access into anything that isn’t a smartphone, netbook or PC. He said AT&T is working to find pricing models that may include prepaid data plans (we think that’s a good idea) to make 3G access on devices accessible to more consumers.

“There are different classes of devices, and you need to deliver different pricing models if you want to sell more than four of them,” Lurie said. “The reality is you need a whole plethora of pricing models, from our biggest monthly plans to the smallest, and all the way down to prepaid and session-based plans.”

Since the phone market in the U.S. is saturated, (although wireless data use is still growing) carriers are looking for other sources of growth. While getting $2 a month to provide wireless transport to an e-reader isn’t the same as $50 from a cell phone subscriber, there are still profits to be made, and AT&T doesn’t plan to leave them on the table anymore.

“If you had asked me five years ago if we would be doing this, you may have gotten a different answer,” Lurie said. “The goal of finding this incremental revenue is to make money. There is a lot of baggage around average revenue per user (ARPU), but these incremental revenues may bring in $1 per subscriber per month at 50 points of OIBDA [margin] on that dollar.”

Lurie says that from a financial perspective, he expects carriers to start breaking out those segments into greater detail. Carriers may include ARPU, net additions and other information broken out for post-paid, pre-paid and emerging subscriptions. Some of these services for emerging devices have the potential to be like text messages, which use a minuscule amount of data, but are very profitable.

But to make this vision a reality, Lurie says, AT&T needs different pricing models for various classes of devices. He also thinks many of these devices will have access to both a 3G and Wi-Fi radio, and will be able to seamlessly and appropriately switch between the two. AT&T introduced some pricing innovation earlier this year by offering a bundled plan for at-home and mobile access, and Lurie says it plans to do more. He outlined several areas where AT&T wants to offer data access:

  • Computers: This consists of smartphones, netbooks and notebooks. AT&T currently has a $60-a-month plan that allows a user to download 5GB per month (when I asked if an all-you-can-eat, unlimited plan was coming, Lurie said that was the 5GB plan), and a $40-a-month plan that allows a user to download 250MB. Lurie said session passes, day passes, and maybe even prepaid would work here as well.
  • E-readers: The Kindle has made this a familiar category, and Lurie said the idea of including the cost of access with a subscription is a strong model, but there may also be ways to charge monthly or session-based fees for data access.
  • Location-Based Services: These are services for tracking children, pets packages, etc. Annual subscription plans or even including a one-time wireless transport charge when someone buys the device are possible models.
  • Everything Else: On the consumer side, this includes things like having a digital camera with 3G access than can ship photos to a picture frame or cell phone. Lurie thinks prepaid options could work here, especially if AT&T was able to deliver an iTunes-like experience where AT&T had a user’s credit card on file. AT&T could notify users that they have the ability to send two more pictures, and ask them if they want to buy more access. Obvious pros are that a consumer doesn’t have to muck around with counting bytes, or make a commitment.

Lurie also mentioned portable navigation devices with cellular access and efforts on the industrial side, such as providing wireless access for smart meters, as areas for growth.

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  1. AT&T discovers the same embedded devices model that Sprint and Verizon Wireless have…*swoon*

    NOT.

    Given the inspirational words Om keeps muttering about AT&T’s data network, does anyone really think AT&T is going to make a killing once they (eventually, supposedly) get around to this market?

    1. Stacey Higginbotham Doug Mohney Thursday, June 4, 2009

      I’m not huge fan of AT&T’s Austin network, but delivering data is more forgiving than delivering voice, so there are opportunities for AT&T. Plus, even though Om or I question the quality of the network, there are 78 million cell phone subscribers who spend money for it. I’m not going to count AT&T out. For what it’s worth AT&T actually has more specialty devices certified on its network right now than Verizon does. AT&T says it has more than 500 and Verizon in January said it had around 30. As for how many are in use and generating revenue for either carrier, I don’t know.

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  3. Congratulations to this exec for actually listening to customers; let’s see if he’ll execute.

    The message boards are rampant with consumers who want pre paid data…and have been for the last 3-4 years!

  4. Only time will tell if he’ll “deliver the goods”.

  5. Troy said “Congratulations to this exec for actually listening to customers; let’s see if he’ll execute.”

    Listening to customers is the last thing on his mind. Plans will be featurized, subdivided & balkanized in ways you will no longer be able to compare two plans rationally. Quote From Lurie – “The reality is you need a whole plethora of pricing models”. I’m not saying the current situation is preferable, but don’t count on the carriers to do anything to help you.

    Obscene and extreme profitability is the only real option to wit:

    New math 5GB = infinity – “when I asked if an all-you-can-eat, unlimited plan was coming, Lurie said that was the 5GB plan)”

    And tiny packets = big charges – “Some of these services for emerging devices have the potential to be like text messages, which use a minuscule amount of data, but are very profitable.”

    Given that the wireless carriers, with LTE and WiMax, want to become your home ISP too and have you forget about cable, fiber and telephone land lines, and given that the consumer will likely placidly go along, I’d say the future looks carefully managed.

  6. This kind of reminds me of the days when AT&T et al would not sell DSL to a consumer who was not also a wireline subscriber to AT&T’s service. I always thought this was ridiculous b/c if you get $1 from someone from whom you’re getting $0 then you set yourself up for getting more from that consumer. For me, I went to pre-paid cell plan two years ago b/c I don’t use my cell phone that often; but I do have an ipod Touch and frequently travel w/my laptop, thus some kind of reasonably priced, a la carte data plan would be very attractive … I probably would have purchased an iphone rather than Touch, but I’d be paying for large chunks of voice and data that I don’t use (and I think that there are lots of people in my position).

    1. Jesse Kopelman carl Friday, June 5, 2009

      carl, you have a good point with the $1 is better than $0 argument, but it simplifies the issue a bit too much. Charging for stuff isn’t just about providing the service, there is also a whole billing and accounting system that needs to be in place. This is an application where reliability has always trumped flexibility. One of the things that killed AT&T Wireless, even more so than network quality issues with the GSM rollout, was problems with the billing system. The right blend of flexibility to support multiple pricing/billing plans and reliability never came together despite a lot of effort and money thrown at the problem. For much of the history of the wireless telephony industry, emphasis has been on things like growth and gross revenues. It is only now that we are nearing saturation and improvement in those areas is becoming impossible that the proper amount of focus is shifting towards margins. Still, you can’t just go out and offer new pricing/billings models willy-nilly — you need the backend support and that is very hard to do. That some carriers appear much better at it is a big mystery to me given how few vendors there are supporting backend systems. It would make a good article for GigaOm . . .

      1. JesseK

        Can you elaborate on this point?

        That some carriers appear much better at it is a big mystery to me given how few vendors there are supporting backend systems. It would make a good article for GigaOm . . .

      2. jesse, i don’t know anything about billing challenges but i can see your point; and i can easily imagine that correct billing is not as simple as plug and play … but — and i have no numbers to back me up — i just would have thought that, particularly w/re: to data, there must be a large group of people who won’t pay $30+ p/month for a data plan but who might pay $10-15 on an a la carte basis … and i just would have thought that this group was large enough for the wireless carriers to have already had in place the appropriate billing.

      3. @Carl

        The problem with those $10-15/month customers is that they were historically considered not worth going after. When Wall Street’s biggest concern is average revenue per user, you aren’t that keen to pick up a whole bunch of people that will lower your average. Factor in the cost of acquisition, including the billing expenses, and you see the problem. Was this shortsighted, yes.

        @Om

        All I know is that this was continuously a disaster for AT&T Wireless, yet other carriers used exactly the same billing platform with apparently far fewer issues. Was it because AWS was trying to maintain too many different plans, poor IT implementation, or something else? Was the AWS situation unique or did other carriers have the same problems, but as an outsider I just didn’t hear about them? You’d have to talk to people who were actually involved in that side of the business to learn the answers.

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  8. So while railing against broadband caps for wired appliances you are for them on wireless? 5gb is not “all you can eat” and if you go over 5gb the hit you HARD with overage fees that you don’t know are coming.

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