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Summary:

AT&T has eliminated unlimited broadband for its smartphones, so I spoke with Mark Collins, SVP of data and voice products, mobility and consumer products, to get his explanation on why AT&T moved away from all-you-can-eat broadband and why it chose the plan structure it did.

AT&T, the nation’s second-largest carrier and the exclusive provider of the iPhone, today introduced new pricing that eliminates unlimited broadband for its smartphones. Some people responded with praise, while others declared AT&T evil. My colleague Kevin laid out the pricing changes in a morning post, and my analysis of the issue is here.

I spoke with AT&T’s Mark Collins, senior VP of data and voice products, mobility and consumer products to get his explanation as to why AT&T moved away from all-you-can-eat broadband and why it chose the plan structure it did. The result is this lightly edited Q&A:

GigaOM: Why move away from the all-you-can-eat model?

Collins: In the early days of wireless data there were few compelling use cases for wireless data. In the first few years there were two use cases: one was text and one was email. Only in the last 3-4 years do we have devices where you didn’t have to convince customers there was a reason to use data. There are still some customers that don’t see the need, and there’s still growth left, but with the proliferation of smartphone devices customers have now seen a reason to believe and are more than willing to pay, so the rationale now is you have scarce resources and you don’t have to offer an unlimited plan. And now you need to price it according to the value equation so the market can allocate the resources accordingly.

GigaOM: How did you come up with this plan?

Collins: We thought about this and worked on this for a long time. We wanted to go about this in the most customer-friendly way possible. No one likes a billing surprise, so we have industry-leading tools to tell people when they get close to their limit and proactive tools that show what people use so they can choose a plan. And customers can switch back and forth between plans.

We also know that…the laws of physics mean fixed broadband is more efficient than wireless. So we offer free Wi-Fi, which is available where 70 percent of usage takes place. We cut our top price by $5 and 98 percent of users don’t reach 2 GB per month, and 65 percent don’t use more than 200 MB.

GigaOM: Why go with tiers as opposed to congestion pricing and why only two tiers?

Collins: Simplicity. We wanted to make it as simple as possible and simple to execute. As for congestion pricing, that’s something that is difficult for a customer to get their arms around and understand. It gets really complicated, and certainly it’s an option and one that we could pursue at some point in time.

GigaOM: Why implement this plan now?

Collins: We’ve been contemplating it for quite some time. We’re quite a bit ahead of the rest of the market in penetration of wireless data plans as well as smartphones so we’re in a different league in terms of the megabytes phones on our network are actually producing. This time is as good as any, and we think we can take market share with the pricing we’ve introduced today.

GigaOM: What about the $20 tethering fee? It looks like a convenience charge.

Collins: That capability is enabling something you can’t do today. You can use one device and get multiple connections so it’s more useful to you. You’re going to use more data so the price is based on the value that will be delivered.

GigaOM: What about the idea that this will limit application usage or even innovation for mobile networks?

Collins: If there was not a cap or limit on spectrum maybe we’d have a different conversation, but this is not a cap on innovation. Overall this is a way to reallocate demand based on products and services that customers are willing to consume and pay for. It goes back to the phrase, what is something worth? It’s worth what someone is willing to pay you for it.

By Stacey Higginbotham
  1. There’s a bit of a contradiction between Collin’s statements and the GigaOM post this morning as it relates to tethering.

    Colins responds to your question about the $20 tethering charge being a “convenience fee” by saying “You’re going to use more data so the price is based on the value that will be delivered.”

    However, in the post this morning, Kevin explained …

    “Tethering — $20 per month for smartphones, on a DataPro plan. This option does not provide additional data — it uses the 2 GB provided for in the DataPro plan.”

    That information would seem to contradict Collin’s statement.

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    1. Collins was referring more to the fact that now you can use your iPhone connection to connect multiple devices as the “value being delivered.” You will also use more data, for which AT&T is happy to charge you for at $10 more for every GB over the original 2 GB.

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      1. That’s not value delivered by AT&T, it’s delivered by Apple as implemented by the iPhone.

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      2. Stacey, it seems like you’re trying to spin Collins comment on tethering to make him look like less of a greedy corporate stooge. The bottom line is that AT&T is ripping off its customers because they can; because Apple has given them a monopoly on the iPhone. Twenty dollars?!? For the priviledge of consuming the data I’ve already paid for on a different device. Ridiculous.

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      3. Stacey, it seems like you’re trying to spin Collins comment on tethering to make him look like less of a greedy corporate stooge. The bottom line is that AT&T is ripping off its customers because they can; because Apple has given them a monopoly on the iPhone. Twenty dollars?!? For the priviledge of consuming the data I’ve already paid for. Ridiculous.

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    2. I was going to the same thing! Mr. Collins has a serious problem getting his facts straight. saying that “You’re going to use more data so the price is based on the value that will be delivered.” to justify the price while at the same time knowing that the $20 doesn’t come with extra data. Mr. Collins seems to be the kind of idiot that would represent an idiotic company like AT&T. Even with the ability to keep my unlimited data, you can be certain I will be looking for a new provider when it comes time for an upgrade.

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      1. Agreed with tim frank and bruce. iPhone tethering capability has always been there…before it was disabled or taken off of the AppStore. AT&T took away value before it gave it back. It’s basically, “We’ll charge you $20 to give you more ways you can run over your allotment…and when you do we will charge you again.”

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  2. One of the biggest piles of corporate BS, double-speak I’ve heard in ages. Goodbye AT&T, hello Sprint.

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  3. How retro.

    Now AT&T can charge a multitude of fees in the same way as does a bank or credit card company.

    While the rest of the world goes unlimited, AT&T imposes limits. You’d have to be a real sap to keep AT&T as your service provider.

    Here’s hoping Apple gets a clue that the iPhone’s dwindling lead over Android, resulting in part because AT&T aspires to be a monopoly but bungles it, is going to be further eroded by this BS on the part of its carrier partner.

    Imagine, I can buy a ‘Droid and have access to two or three competitive carriers, each of which offers unlimited service options. And AT&T wants me to do what?

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  4. I highly doubt it is for providing more value to their customers, they don’t even appreciate their customers

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  5. I’m split on the whole ordeal. From a broader standpoint this doesn’t seem like much of a value, but for me personally it WOULD cost less as 90% of the time I have access to wifi with my iPhone.

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  6. It is all about value. Who do you think AT&T’s primary stakeholder is? The customer? Not unless they happen to own stock.

    Btw, blastfax kudos all around for such an innovative model.

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  7. Andrew Norton Wednesday, June 2, 2010

    I think they need to leave the unlimited plan for tethering and phone data use and go with the tiered plans for people that only use data on the phone. This nonsense that you get something more with tethering is ridiculous as you don’t get any new bandwidth or services??

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  8. Given this usage based pricing, there will not be any restriction on running VoIP. If so, then with the Dataplan one can get 4000 mins. In other words, one can get “unlimited” voice for $15.

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  9. Michael Chaney Wednesday, June 2, 2010

    I’m pretty disappointed at the the softball questions lobbed at AT&T in this post. Why was Collins not pressed about the timing of this change and the coincidental upcoming release of iPhone OS 4? Why was Collins not made to explain why if a tethered phone dips out of the same bucket of data as an untethered phone, why the need for an additional charge? You might as well have just let Collins write a guest article for GigaOM.

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    1. The question about timing was asked (why now) and Collins wouldn’t name the iPhone as the reason (yes, I asked), however his reference to taking share with the new pricing could be seen as a reference to the upcoming iPhone. It does make the plans cheaper, which could lure new iPhone users. And he did explain why the tethering costs more. Bottom line is AT&T knows you’ll pay more for the convenience, so it will charge it. I think that’s pretty clear in his response, even if it isn’t an explanation that will sit well with many users.

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      1. “AT&T knows you’ll pay more for the convenience”

        You just said it yourself, it’s a convenience charge.

        When Collins says “That capability is enabling something you can’t do today” he seems to be referring to iPhone, to which Apple added tethering as a feature when OS 3 was released a year ago.

        AT&T is adding no value, just holding an preexisting feature for ransom. Extorsion in my book.

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