AT&T Announces iPhone Tethering, Cuts Price and Quality of 3G Service

It’s easy to make a claim that AT&T (s att) is effectively cutting the quality of its 3G service, but that’s the gist of what it announced last night via a press release. The timing of this release is odd as it conveniently came a couple of hours after Steve Jobs stood by them at Wall Street Journal’s D8 conference in Southern California. When asked about Apple’s relationship with AT&T, Steve Jobs said things are, “pretty good actually” and that the wireless provider is “handling way more data traffic than all of their other competitors combined.” Steve may be right as he followed up with an assurance that the AT&T network would improve by the end of the summer.

Shortly after journalists had their chance to weigh in on the interview, AT&T announced changes to its 3G data plans. Press releases are generally pretty dry so I’m going to lay out exactly what happened and how AT&T managed to time things perfectly to fit its needs and not the needs of its customer base.

First, let’s point out that on June 7, tethering for iPhone will be available, which is the same day Steve Jobs takes the stage at WWDC. It’s a breath of fresh air that iPhone users in the U.S. will finally be able to have tethering via an official means…only 9 months late. Of course, AT&T wasn’t just going to give us tethering for free and without limitations, since AT&T’s data network is already strained with millions of iPhones and other data-hungry smartphones.

In order to add tethering to your iPhone, you have to switch to the new data plans, specifically, the DataPro plan. Before this change, iPhone users on AT&T would pick a voice plan plus a data plan that was $30 a month and that included unlimited data and tiered SMS plans. Voice and SMS prices remain unchanged but AT&T is going to drop the term “unlimited” from its data plan offerings and let users pick between two plans.

  • DataPlus: Includes 200MB of data per month for $15.
  • DataPro: Includes 2GB of data per month for $25. Add $20 if you want tethering.

AT&T’s angle is that its most expensive data plan is now $5 less which is good for consumers but the fine print is that the previously unlimited plan is now a 2GB per month plan. To be fair to all wireless carriers, unlimited was a term that should have been retired long ago. Verizon (s vz) and Sprint’s (s s) unlimited plans are roughly capped at 5GB even though it’s not a set in stone number. AT&T’s was rumored to be around the same cap per month. Assuming 5GB is the average data cap for U.S. carriers, prior to June 7, iPhone users on AT&T were paying $6 per gigabyte each month and now they’re paying $12.50 per gigabyte, so AT&T’s spin of making wireless data cheaper for the general public is a stretch at best.

I’ve written about AT&T before and received phone calls from corporate communications with their spin and I assume they’ll tell me that a majority of users never use more than 2GB of data so this plan is more accessible for the general public and will save the average DataPro user $60 per year over the current plan and casual data users on the DataPlus plan will save $180 per year. That’s great, but what about the users like me who would like to use their phone as Steve Jobs intended? The iPhone is one third “Internet Communicator” according to Steve’s 2007 Macworld Keynote and I’d like to be able to use it that way. Well, AT&T has an answer to that as well.

It’s promoting a free addition to all AT&T users on the DataPlus or DataPro data plans which is unlimited access to any of AT&T’s 20,000 Wi-Fi hotspots throughout the U.S. This is a perk that AT&T has given away to iPhone users for quite a while now, so if you call up complaining about hitting the 2GB limit, they’ll simply direct you to the nearest Starbucks as a solution for your mobile Internet needs.

Tethering is only available to DataPro subscribers at an additional $20 a month. This is in line with what other carriers such as Verizon are charging for tethering on devices such as RIM’s (s rimm) Blackberry. AT&T notes that this won’t be available to iPhone owners until iPhone OS 4 ships, “this summer.” It’s unclear if tethering will affect the 2GB per month limit of the plan but I’m confident that AT&T is going to enforce it heavily.

AT&T didn’t forget about Apple’s iPad saying that, “the $25 per month 2GB plan will replace the existing $29.99 unlimited plan.” which effectively kills the deal that Apple announced at the iPad launch that many customers bought into when they purchased the 3G iPad. For legal reasons, any iPad users currently on an unlimited 3G plan at the old price will remain on this plan with no changes to service. In other words, activate your 3G iPad service immediately for unlimited 3G goodness while you still can. Remember, as soon as you cancel the 3G iPad service and decide to start back again (since there’s no contract required), you’ll be on the new $25 a month 2GB plan.

To recap, AT&T is dropping “unlimited” data, doubling the price per gigabyte for 3G customers, offering tethering but charging $20 for it on top of the $25 a month DataPro plan and telling iPad users that unlimited data is no longer an option. Steve Jobs assured us that AT&T service would be improving, but it looks like the wireless carrier has decided to simply cut our data and raise the price in order to do that instead of actually improving their service to fit the needs of the user base.

I’m sympathetic to AT&T’s bandwidth issues but that’s how it is when you’re the carrier of the highest selling and most data hungry smartphone on the market.

What do you think of the new changes?