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Summary:

AT&T has stopped subsidizing tablets, recognizing that it can’t sell slates the same way it sells smartphones. Now AT&T and other carriers need to start dropping tablet data plan pricing. If we’re no longer “paying back” the device subsidy, we shouldn’t be paying subsidized plan prices.

lots of tablets

AT&T has finally come to the conclusion that subsidies don’t make sense when it comes to selling tablets. Over the weekend, Engadget uncovered a document stating that AT&T would it would start selling all its 3G-4G tablets at full price, eliminating the contracts that come with them.

The Verge confirmed with store representatives that the policy change will start Monday, and in fact, AT&T’s $35/3 GB contract tablet plan has disappeared from its website. AT&T only subsidized Android slates, not the iPad, so the impact won’t be huge. AT&T also isn’t the only operator to dump tablet subsidies. Verizon did so in June when it launched its shared data plans. But these policy changes are significant.

As my colleague Tom Krazit points out smartphones are fundamentally different devices than tablets. While mobile data connectivity is the smartphone’s primary reason for existing, cellular broadband is a secondary consideration for customers investing in a coffee-table computer. Consumers have shown they’re willing to pay the tablet’s steep price tag, but they’ve shown less willingness to invest in expensive mobile data plans and long-term contracts when Wi-Fi is so readily available.

By eliminating tablet subsidies, AT&T is discarding the $5 a month surcharge on tablets and pretty much normalizes data pricing across individual smartphone and tablet plans. AT&T customers will soon offer customers two choices: sign up for an individual no-contract plan (250 MB/$15, 3 GB/$30, or 5 GB/$50), or for one of its forthcoming shared data plans, which allows customers to add a tablet to pooled data bucket for an additional $10 a month.

But AT&T should go one step further. Now that customers are paying the full costs of their slates, Ma Bell should charge less for tablet data than it does for smartphone data. Here’s why: Subsidies aren’t traditional discounts or sale; they work much more like mortgages. Carriers give you an expensive device at a low up-front cost, but recover the subsidy through premiums factored into your plans over the next two years. If there’s no subsidy then it stands to reason customers shouldn’t pay those higher rates. T-Mobile has already adopted this approach, charging much cheaper data and voice rates to customers who bring their own devices.

I won’t pick on AT&T too much. Ma Bell is actually the most progressive (or least regressive) operator when it comes to tablet data plan pricing. In a recent analysis of U.S. carrier data plans, we found that AT&T had the cheapest per-gigabyte rates for tablets and mobile broadband than any carrier. Even T-Mobile’s new discounted value plans are in some cases more expensive than AT&T’s regular rates. For the same $30 price AT&T charges for 3 GB a month, T-Mobile only gives you 2 GB.

Operators are beginning to realize that tablet subsidies aren’t the way to go. Now they need to eliminate legacy subsidy pricing models. AT&T and Verizon’s shared data will solve the problem in part by allowing customers to draw tablet and smartphone data from a common pool – though they have other problems. But operators really want the tablet revolution to occur over their networks and not over Wi-Fi, they need to make tablet data cheaper.

Approved photo courtesy of Shutterstock user Stuart Miles

  1. Very good point Kevin.

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  2. Great article. Glad to know someone’s keeping an eye on the data plan costs in transitions. I’m on AT&T’s 4G LTE and it’s reasonable — but that’s because my real estate firm pays for it. If I was on my own I might still be using a flip phone!

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    1. But you repeat yourself. And, I hear ya! I’m a designer in Atlanta and the plans are ridiculous. If AT&T is going to put 4G LTE in other markets, you would think the competition would keep driving down costs. Guess we can only hope.

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  3. Great article. Glad to know someone’s keeping an eye on the data plan costs in transitions. I’m on AT&T’s 4G LTE and it’s reasonable — but that’s because my real estate firm (Dallas) pays for it. If I was on my own I might still be using a flip phone!

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  4. Kevin, I think you’re smoking something strong if you really think AT&T is going to give people a break on their data plans for this, but props for calling them out. They’re essentially taking the carrier benefit of prepaid (full price, unsubsidized device), but forgot to give the user the typical lower-priced, no-contract plan that come with it.

    I would challenge this one statement, “While mobile data connectivity is the smartphone’s primary reason for existing, cellular broadband is a secondary consideration for customers investing in a coffee-table computer. ” Usage statistics are showing that Wi-Fi is the primary data service for both smartphones and tablets (Informa/Mobidia, China Mobile’s 1H’12 interim release, etc…). Looks like ~65-70% of smartphone data traffic is going over Wi-Fi.

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    1. Kevin Fitchard Monday, August 20, 2012

      Him OmInc,

      You’re definitely right most smartphone traffic traverses Wi-Fi. I think there’s a subtle but distinct difference between use and traffic though. What I mean is that email, chat, social networking, mapping and of the rest of the real-time services we use all lean heavily on cellular data for their persistent connections. A lot of people use Wi-Fi for data heavy apps: video, image transfer, updates, etc.

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      1. Hey Kevin,

        I think you’re creating a service distinction that doesn’t really exist. I use Mobidia’s My Data Mgr app on my iPhone (since I do research in this area). Twitter is my 2nd most bandwidth intensive app (after streaming media) and it almost all goes over Wi-Fi. Mail does the same. I think you have a point about mapping, since people tend to use that while truly mobile, but most of these other services are going to use Wi-Fi when it’s available, and of course some currently only work over Wi-Fi (Facetime).

        Perhaps instead of real-time, we ought to be considering what apps are used when truly mobile. Mapping and deal apps (eg push promotions) are two that come to my mind.

        Best

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      2. Hey Dave,

        Well most of the traffic from Wi-Fi since a good deal of the background updates are done when your near a hotspot, but — for me at least — the greatest utility from those apps come from when I’m mobile. If I’m at home on Wi-Fi I’m checking twitter on my PC or tablet not on my phone. My phone’s still downloading all of those tweets though.

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  5. AT&T and Verizon won’t reduce the price of tablet data as long as the 2 of them dominate the wireless market. The 2 of them are essentially monopolies. Data has become their main profit center. They will continue to increase what they charge for data.

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  6. Taking more while giving you less! It’s what all the Tel-cos are doing. If I keep my subsidized phone more than two years, do you think my plan will go down because I already paid for the phone? – Nope, they still charge the same every month, so I am paying for the phone twice, even though I “supposedly” would pay the entire phone off in two years.

    Now with the “new” plans I cannot even upgrade and get the subsidy on the phone. I have to pay full price if I want to keep the same plan, so they are giving me even less while charging more even if I don’t fall for the “share” plans. Yeah give me texts and voice for free, when i don’t want those in the first place, but charge me more for what I actually want. Ridiculous.

    They are happy to rip as many people off as they can and they will continue to do it until there is real competition.

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    1. Kevin Fitchard Tuesday, August 21, 2012

      Hi Paul, I think you are officially ready to try out one of the new MVNOs emerging in the market :) No contracts, bring your own device (or buy it up front), and cheap plans

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      1. Those MVNOs are becoming less of a good deal when you take their restrictive terms and conditions into consideration. When you are limited on a daily basis of how much of an already limited monthly data allowance you can use without risking being throttled or having your service terminated, that really ruins the prepaid experience. In addition, CDMA prepaid MVNOs do not allow a lot of devices on their service. For example, Page Plus, which uses Verizon Wireless towers, will not allow iPhone or LTE devices that are CDMA-baseband chipset equipped. It feels like while there is a true spectrum crunch, the costs and compromises of participating in the mobile lifestyle are developing into an even greater “lifestyle” crunch where you have to decide if you’re ok that our publicly owned spectrum is being sold to us for dollars on the penny where the carriers only have to spend pennies on the dollar to maintain and expand quality while providing us with some of the worst terms and conditions I’ve ever seen in commerce.

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  7. i already have a phone…a very cheap phone, all i need is something to use the web on the go, then if i need to make a call i can use my cheap tracfone…lol….that kind of price for data is very good….this is the way to go….and w/ either a android or Ipad, there are VoIP apps that can turn ur slate into a phone…..so why pple are still signing contracts, is a mystery to me……def. a thing of the past

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