AT&T Explains Its Pricing Change: It's All About Value

74 Comments

AT&T, the nation’s second-largest carrier and the exclusive provider of the iPhone (s aapl), today introduced new pricing that eliminates unlimited broadband for its smartphones. Some people responded with praise, while others declared AT&T (s 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.

74 Comments

HonestJohn4u

Mark’s logic escapes me, at&t’s data structure is such that the only plan that makes any sense is unlimited. Their 200MB plan reduces your available useage by 96%, but they only reduce your cost 50% and have the audacity to say that they are doing you a favor. The intermediate 2GB plan reduces your available useage by 60%, but they only cut the price less than 17%. If you have the audacity to try to use your device with any kind of flexibility by tethering they will hit you with a 66% surcharge for using the data you already paid for in the initial $30.00 data plan.
I just went down and read some of the other comments and it appears that we are all perceiving Mark’s comments the same way, but I have bad news for Mark. As the world becomes increasingly more wired it will become possible to get value out of a smart phone through wi fi networks and consumers may just choose to own their smart phones without a data plan at all. Mark is inadvertently opening the door for competition from LAN’s. If I worked in a major metropolitan area and could get unlimited wi fi for $9.99/month I would strongly consider it. The best part is that wi fi is faster than 3G or 4G, and they don’t whine about tethering. I think I just made my first million!

Frankie Peyman

The only reason I am with AT&T is iPhone. AT&T has had many promises for improvement. I believe AT&T management doesn’t have any reception problems, as long as they are sitting in their offices. Shame on you AT&T for promising and not delivering.

Today I received a letter from AT&T about the new 4G improvements they have in the pipelines for many areas! My only comment left is I don’t care about your 3G, 4G, or 5G when I don”t even get 1G on my phone.

David

I just signed up for ATT since the WP7 will be GSM until mid 2010. I was very disappointed to see Tethering costs an extra $20 and you really don’t get any extra data. I think enabling functionality which already exists on phones is absolutely BS.

Globalhab

ATT are crooks. That is why I’m giving my iPhone to my daughter, so she can use it as an iPod. Then I’m going to Sprint and getting the Evo which allows up to 8 computers to connect with it. All for less then I’m payin now with ATT and includes unlimited data. See ya ATT. X

Jon19

What burns me the most about this is the American consumers sheep like mentality. We are allowing these corperations to rape us and we don’t even ask why. It seems to have slipped by everyone that AT&T has been double charging at least 65% of their customers for years. Look at the numbers for what they say and not what they want you to belive. If they can remain profitable with their new plans, this is what it breaks down to for me.
Only 2% use more than 2gig per month= overcharging 98% by at least $5 per month for years= how many billions.
65% use less 200mb= overcharging 65% by $15 per month for years= how many billions.
Any idiot that can count should be able to see through the statstical mumbo jumbo they spew to make you think you’re getting a good deal. They have been publicly raping our wallets for years now, just gave us all the data to prove it, didn’t invest any back into improving the network, wraped it in a new package with a cost reduction sticker and knew all the while we would buy it without question because after all we are just sheep with money. Come on America, pull your head up out of the grass and look around. The wolves are coming.

mark

When I jailbroke my iphone 3g a year ago – I could tether for free. Even then, I didn’t use more than 2gb a month, and I only used tethering sparely, as it is slow and cumbersome and kills the battery FAST. I could also make my own icons, change the background on the screen, and make my own sound effects for things like startup/shutdown/texts/mail etc., and even record videos on the phone, something they are just now starting to let people do.
Why do I have to wait for, or pay extra for, functionality that is already there, or to use data that I have already paid for?
I can see capping the data usage, but why not open up tethering for free? The question should have been “Why charge at all for something the phone readily does?”
I like my iPhone. It plays videos, I can make my own free ringtones, iTunes is a good mp3 management tool, and I like my podcasts. With AT&T stifling innovation and shafting customers, I might look at droid when it comes time to upgrade…that, and Verizon actually has 3g in my area. I don’t care if AT&T has the “fastest 3g network” in the country. Who cares if you cant get on it?

Luke

If he wants to make it customer-friendly, GIVE US THE CHOICE TO HAVE UNLIMITED!!!!

Luc H

Apple and AT&T greed. This is why I have 2 Jailbroken unlocked iPhones.

I use T-Mobile prepaid SIM’s @ .10 per min. No data just WiFi, works great, costs me about $10 a month per phone. Use Skype for calls when in WiFi areas.

Will never sign a long term contract again, it’s anti consumerism. Just say no.

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