AT&T is appealing the decision, while Spaccarelli is taking his cause to the Internet, joining up with PublikDemand in hopes of creating a viral campaign to force AT&T to stop throttling its remaining unlimited customers, all of whom were grandfathered into their plans when AT&T introduced tiered pricing in 2010. AT&T isn’t too pleased with the unwanted attention, and is seeking to settle the case to keep Spaccarelli quiet, according to the Associated Press. Spaccarelli, however, claims that AT&T’s settlement offer is more a demand and that the carrier has threatened to shut off his mobile service if he doesn’t play ball.

AT&T, however, claims that’s not true. In a letter (available on the PublikDemand site as a pdf), AT&T writes that Spaccarelli is tethering his iPhone to other devices in violation of his contract. “As the result of your tethering, AT&T has the right to terminate your service,” the letter reads. “Nevertheless, and as we discussed, AT&T is interested in hearing any concerns you would like to raise about AT&T, and AT&T wants to discuss with you the concerns it has about your data usage.”

There definitely seems to be an implied threat, though AT&T doesn’t connect the dots completely. We reached out to Ma Bell and were told by a spokesman that AT&T never threatened to shut off Spaccarelli’s service in the letter. AT&T was making the point that Spaccarelli was violating his contract, which would normally be grounds for termination, the spokesman said.

The rest of the letter is boilerplate for AT&T’s non-disclosure agreement, which AT&T would require Spaccarelli to sign if he agreed to settlement talks. In that agreement, AT&T does say it would terminate Spaccarelli’s service if he revealed any information about his negotiations with AT&T. But the spokesman said that would be the case only if Spaccarelli agreed to the legal contract and then violated the terms.

Either way, one of the stipulations of the agreement is that Spaccarelli not reveal its existence, so it’s pretty much void as it stands now. If AT&T really plans to shut off Spaccarelli’s iPhone we’ll find out soon enough. Most likely, AT&T would try to force him to change to a tiered plan or tethered data plan, which it has done with customers in the past.

A public relations and a legal nightmare

It doesn’t seem like Spaccarelli is interested in a settlement in any case. Instead he wants to publicly shame or legally force AT&T to stop its throttling practices. “I need the money, but for me, this case is not about money at all,” Spaccarelli told the The Associated Press after the original court case. “You don’t tell somebody ‘you have unlimited’ and then cut them off.”

The controversy surrounding AT&T’s throttling policies only appears to be growing ever since the initial reports surfaced that AT&T was slowing down speeds on customers after they used as little as 2 GB in their monthly cycles. Two GB might seem like a lot, but not when you consider that AT&T is selling its tiered-plan customers 3 GB for the same price as an unlimited plan. AT&T has since revised its policies so that throttling doesn’t kick in until after 3 GB of usage on HSPA+ and after 5 GB on LTE.

Meanwhile, the Spaccarelli ruling is creating new problems for AT&T. The award was only $850, but it could just be the initial crack in the dam. Here’s what my colleague Jeff Roberts wrote on our sister site PaidContent about the possible implications:

A judge’s decision in small claims court doesn’t create a legal precedent that others must follow. Ordinarily this type of case would lead to a class action suit (allowing everyone to sue at once), but AT&T short-circuited that option by banning these types of lawsuits in its customer contracts. This is a controversial tactic, but a divided Supreme Court agreed it was legal last year.

… AT&T’s “no class action” rule helped to stifle consumer lawsuits, but a wave of small claims filings could open a new can of worms. To stop this, the company will likely go all out to shut down Spaccarelli as a way to deter others. … The bottom line is that new lawsuits are for now likely to be a trickle rather than a flood. This could change if Spaccarelli wins the appeal.

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Smartphones are not included, for now. But it’s a big blow for unlimited data fans and undercuts one of Sprint’s big marketing messages in the market. And it raises questions about whether unlimited in mobile is sustainable if the last leading proponent caves in, even partially.

Under the new tiers, which start in November, users of mobile hotspots, USB modems, tablets and notebooks will pay $45 for 3 GB of combined 3G and 4G, $60 for 5 GB and $90 for 10 GB of combined data. Consumers will pay an additional 5 cents per megabyte over their monthly limit. Previously, users had limits on 3G data but 4G was unlimited.

Sprint was already showing signs that it couldn’t keep up the unlimited game forever. It announced last month that it was doing away with unlimited data for its smartphone hotspot feature and was capping data at 5 GB a month. But to now extend that to mobile hotspot devices and mobile broadband plans for connected devices, it makes you wonder how long before the end of unlimited data comes to smartphones. Unlimited data was a selling point for the Sprint iPhone  and may have been helpful in luring some heavy data users away from other carriers. But if Sprint can pull the rug out from under them like they’re doing here without the promise of grandfathering them in, it could cause a lot of bad feelings.

I’m curious why Sprint is doing this now. I can understand if it was worried about 4G WiMAX data being affected by a hot new phone like the iPhone, but the iPhone 4S only supports 3G. This suggests 4G was already getting congested or offering unlimited data WiMAX plans was becoming too expensive. If that’s the case, it does make me wonder how long Sprint can keep offering unlimited 4G for smartphones.

Stephen Bye, Sprint’s CTO, said at our GigaOM Mobilize conference last month that the carrier was committed to unlimited data plans because it gave the operator a differentiator. But he admitted that there are big costs to keep up with in offering unlimited broadband. “Is there pressure [on cost for unlimited data]? Yeah, and we’ve got to look at how to get the cost structure down to continue to offer this,” said Bye.

We’ll see if this the beginning of the end of Sprint’s unlimited 4G offering, and I have to assume it will extend to smartphones at some point. To make such a turn in the course of less than a month suggests Sprint is having to react to a lot of pressures, both financial and network-related. It’s facing a lot of scrutiny about its plans to launch an LTE network next year and whether it will have enough money to make that happen. With so much going on, I wouldn’t hold my breath for unlimited 4G to stay a reality for Sprint smartphones. It was nice to have unlimited bragging rights, but it may be too expensive to keep that up now.

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To help its customers adjust from unlimited plans, Verizon has created an online calculator with a number of data-intensive activities, which complements but differs from AT&T’s own data usage calculator. And that’s the crux of the problem here, because different smartphone uses eat up different amounts of bandwidth in a given time. Think of the system like electricity, although in this case, you have to measure by the megabyte per hour instead of a kilowatt per hour. You can light a room with 100 watt incandescent bulb and use 100 watts in a given hour or you can illuminate the same room with a more modern LED light bulb using (and paying for) only 13 watts of power in a hour. The same concept applies to emails, web browsing, VoIP calls, and streaming video: All use the same network, but require different amounts of broadband.

Verizon’s calculator does a fine job at providing a monthly estimate of broadband data needs based on the wide range of mobile activities, but here are some guidelines on just how much data different activities use on a smartphone. Bear in mind that these are general guidelines as the broadband needs of some similar activities will vary, which makes this all the more complicated. Streaming the same video in a high quality or high-resolution setting will use more bandwidth than streaming the same video streamed at a lower setting, for example.

Again, these are guidelines to get you started in understanding how much mobile broadband smartphone activity requires. Because some activities use small bits of data, such as social networking status updates, tweets and text-only instant messaging, I’ve bypassed them in this table. But data-intensive activities, like those in the chart, can add up. A 2 GB monthly plan, could be used up in as little as a few hours if you stream high-quality video to a smartphone, for example.

There are a number of varying factors when considering mobile broadband needs, but one mantra should hold true: The higher the quality or the more immersive the experience of any media or file, the more bandwidth it will require. That’s just like the electricity example. If you want brighter lights in a room, you’re going to need more electricity.

It’s also worth noting that the more mobile broadband you purchase under either the AT&T or Verizon plan options, the cheaper the service is on a per-gigabyte basis. At the low end, a 200 MB plan, or one-fifth of a gigabyte is $15 or $30, depending on the carrier. That works out to a per-gigabyte cost of $125 to $150. But a 2 GB plan from AT&T is $25, making the price of a gigabyte a much more palpable $12.50. And a whopping 10 GB from Verizon is $80, bringing the per-gigabyte unit price down to $8. Overages for both carriers in most cases are $10 per gigabyte, which happens to be very close to what it costs a carrier to deliver a gigabyte of mobile broadband, according to Chetan Sharma, a wireless analyst.

Note: the table was built upon certain assumptions (which will vary by user) and created with help from an online bandwidth calculator as well as information from the carrier sites.

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The least expensive contract plan, which includes 500 voice minutes, unlimited messages and just 200 MB of fast data access is now priced at $59.99. Heavy data users can bump up their monthly mobile broadband limit to 2-, 5- or 10 GB of data for additional costs; the 10 GB plan in that case is 109.99 per month. The carrier continues to call such data plans unlimited, which is technically correct, since data access is not shut off. However, I suspect consumers will be upset if they choose the wrong data plan and hit their limit earlier than expected, forcing them to see lower data speeds.

Data tiers may be the sticking point for many consumers as we’re using our phones more for apps and web browsing than for voice in most cases. And T-Mobile recently modified its Wi-Fi calling terms, which can help reduce the number of voice minutes a consumer needs. Instead of Wi-Fi calls counting against monthly minutes, they’re now free on qualified plans.

To a degree, I think T-Mobile is playing loose with the term unlimited, because it’s unlimited with an asterisk. Even the carrier’s own blog makes note of that: Just last month, a new plan was introduced and T-Mobile put together an infographic that focused on the company’s “truly unlimited” plans. Note the asterisk and caveat about the slower speeds:

Again, T-Mobile isn’t limiting the amount of data it will provide a paying customer. Instead, this approach is a slight twist on a traditional tiered data plan and has been in place since last April for some plans. However, I wonder how many customers fail to see the asterisk once they see the word unlimited. Ultimately, I’d prefer to have full speeds and simply pay for the data I use, but the industry, at least in the U.S., is moving towards tiered data buckets. Some of those buckets have asterisks, and some don’t.

Image courtesy of Flickr user, san_drino

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“An independent negative issue for Netflix and other Internet video providers would be a move by wired ISPs to shift consumers to pay-per-gigabyte models instead of the current unlimited-up-to-a-large-cap approach. We hope this doesn’t happen, and will do what we can to promote the unlimited-up-to-a- large-cap model. Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.”

That means that ISPs introducing tiered data plans could be overcharging subscribers by up to 100 percent. Netflix also takes issue with the way that some ISPs treat traffic coming into their network. While Netflix doesn’t call out Comcast by name, the country’s largest cable provider recently got into a spat with Level 3, one of Netflix’s content delivery networks. That fight resulted in Comcast asking Level 3 to pay higher interconnection fees for connecting to Comcast’s last-mile network.

“Delivering Internet video in scale creates costs for both Netflix and for ISPs. We think the cost sharing between Internet video suppliers and ISPs should be that we have to haul the bits to the various regional front-doors that the ISPs operate, and that they then carry the bits the last mile to the consumer who has requested them, with each side paying its own costs. This open, regional, no- charges, interchange model is something for which we are advocating. Today, some ISPs charge us, or our CDN partners, to let in the bits their customers have requested from us, and we think this is inappropriate. As long as we pay for getting the bits to the regional interchanges of the ISP’s choosing, we don’t think they should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers’ desire. Their customers already pay them to deliver the bits on their network, and requiring us to pay even though we deliver the bits to their network is an inappropriate reflection of their last mile exclusive control of their residential customers.”

As a provider of streaming video, which consumes large amounts of bandwidth and is a competitive product to many ISP’s pay TV operations, Netflix is a canary in the coal mine when it comes to anti-competitive behavior by ISPs.

Image courtesy of Flickr user Scott Feldstein.

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