The Good, the Bad and the Ugly of AT&T's New Pricing Plan

72 Comments

Updated: AT&T (s T) changed its mobile data plans today — effectively putting an end to the all-you-can-eat mobile broadband pricing plans for smartphones. Having watched this space for the last year I knew that given the demand for mobile broadband and the capacity of the mobile networks, carriers were eager to end the practice of unlimited data because it wasn’t economically sustainable for them. As I wrote last July:

“The carriers keep discovering that if you give people access to fat pipes, they’re going to use them. That’s good for innovation, but on the wireless side, it can cause problems for the carriers’ bottom lines.”

Why Usage-based Pricing Is Here

The answer to that problem would be usage-based broadband, and in a GigaOM Pro piece (sub req’d) I outline how several of those pricing scenarios could play out. What’s key to understand here is that few folks in the industry believe it’s possible to offer the level of mobile broadband that people want on current wireless networks — even after carriers switch to more efficient technologies like LTE. An exception might be Clearwire (s CLWR), which has deep spectrum resources when compared with the other major carriers. Indeed, Clearwire’s Mike Seivert told me that currently its mobile customers consume an average of 7GB each month, a feat that would cost $75 a month on AT&T’s new pricing plans (on Clearwire it could cost $40-$55).

Clearwire, in which Sprint (s S) holds a 56 percent stake, has said it has the ability to stick with true unlimited service over the long term, and will likely use that as a competitive differentiator in its fight for customers among the major carriers. Meanwhile T-Mobile, the fourth-tier carrier, plans to offer unlimited speeds — until users reach 5 GB a month, at which point it will slow them down. There are no options to buy more bytes per month, and the slowdown will take place regardless of whether the network is congested or not.

Kevin did a great job laying out AT&T’s new pricing in his story this morning, but here’s the quick summary version:

  • DataPlus — 200 MB of data for $15, which equates to $75 per GB. Customers that exceed the data cap will pay an additional $15 for another 200 MB.
  • DataPro — 2 GB of data for $25, which works out to $12.50 per GB. Customers will pay $10 for each GB over the cap in a given month.
  • 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.

How AT&T’s Usage-based Plan Falls Short

AT&T’s pricing has taken current usage into consideration, with the carrier claiming that 98 percent of its users consume less than 2 GB per month, while 65 percent consume less than 200 MB. But in the long term, it isn’t a great option for consumers, and when it comes to the tethering fee, is downright punitive. It’s also inconsistent with managing user demand for broadband given that one reason for the shift is to manage scarce spectrum resources and prevent network congestion. Instead what it does is push more subscribers into a higher tier of service by creating an extremely low-usage tier with high overage fees, and a higher-usage tier with fees that, comparatively speaking, are much more reasonable. For example, using 201 MB on the lower-usage, DataPlus plan costs $30 whereas $25 on the DataPro plan will yield up to 2 GB. If you’re anywhere in that broad middle (or worried about landing there), you’re going to select the 2GB tier, even though most iPhone users use an average of 500 MB.

That’s not ideal, and the $20 fee for tethering is simply paying AT&T for the privilege of using your phone to connect your laptop to the web. Basically that fee is a $20 “Keep Your Laptop Off the Network” sign.

Effects on Innovation

Underlying the entire pricing structure is the idea that 2GB is enough when it comes to mobile broadband, a fact disputed by Cisco’s data noting that mobile users currently consume, on average, 1.3 GB a month, an amount it expects to grow to 7 GB by 2014. Already folks like Andy Abramson are noting how AT&T’s plan will limit the value of using Skype (especially video), since video on mobile phones will drive demand through the roof, AT&T’s pricing will cause pain for YouTube.

Data provided by Allot Communications

Also affected will be the app economy and developers looking to create the next big thing for mobile networks. For example, augmented reality requires a network connection that sends location data to offer information, but one day may rely on a database of imagery and photos sent by the camera to get a more accurate sense of where people are. Sending photos, especially those taken with 8-megapixel cameras, uses data, and could consume more if AR becomes an everyday way of finding information.

Other applications, including those that stream music, send real-time traffic updates or even web video conferencing, which is rumored as a possibility on the next-generation iPhone, would also be hampered by lower data caps, not to mention gaming and even ads consumed on the handsets. How acceptable will Apple’s iAds platform be if those fancy ads consume precious megabytes that might push consumers past their data plan limits?

What It Says About Competition

Aside from the potential shackles it may place on the app ecosystem, particularly around the iPhone, the pricing plan says a lot about the state of wireless competition in the U.S. Recently, the FCC issued a report on the status of competition in the wireless industry that laid out how, from an infrastructure point of view, AT&T and Verizon have clear advantage. They both own large amounts of really good spectrum (about 92 percent of the spectrum in the 700 MHz band in the top 54 U.S. markets is owned by At&T and Verizon) and own their own wireline networks, which means they don’t pay other people for backhaul the way that T-Mobile and Sprint do.

The top two carriers also have the ability to set voice and data plans prices that are higher than both Sprint and T-Mobile — and yet still have the lion’s share of the customers. This might be because of better network coverage, possibly attributable to those spectrum and backhaul assets. Regardless, a better network is a competitive differentiator that could lead people like myself to pay higher prices for a better experience. The top two carriers are also more profitable, likely because of their infrastructure advantage.

Yet so far only AT&T and Verizon have raised their early termination fees on smartphones and unveiled plans to implement tiered pricing. While the details of Verizon’s tiers aren’t published yet, its CEO said last week that Big Red would offer buckets of data that a customer could use to connect multiple devices. Clearly, AT&T’s pricing change is the tip of a very large iceberg that could slow innovation and cause some consumers to pay more over time. However, it’s also a symptom of our demand for data and perhaps a warning that our wireless industry isn’t as competitive as we thought it was. In short, the U.S. wireless industry was always going to kill all-you-can-eat broadband eventually, but AT&T’s method isn’t a forward-looking one, nor does it effectively help the company manage peak demand on its network.

Update: For AT&T’s explanation on the particulars of the pricing plan and the timing of the changes, please see my interview with AT&T exec Mike Collins.

72 Comments

tim

bottom line we need regulatory oversight of these carriers. everyone needs to head over to the fcc website – it’s quite easy to file a complaint – and state your experiences.
In my case, I spent at least 20 minutes listening to an ATT representative explain to me why ATT can autotext me on all kinds of activity regarding my account – such as address updates or autompayment confirmations or plan changes, but ATT refuses to autotext me when i’ve exceeded my minutes limit and enter the exhorbitant overage fee rate of 45 cents per minute. I’ve been online and discovered that overage rate charges are a CASH COW for AT&T – they have no intention of instituting a text alert when your rates skyrocket because they are making millions. Initially the ATT rep told me (1)our system is not set-up for that. I pointed out that ATT already autotexts me on all kinds of activity on my account. Then the ATT rep said (2) that they only send autotexts on changes to my account. I pointed out that changing the rate per minute from 0 to 45 cents is a massive, critical, important change of great interest to the customer. (3) the rep then said that AT&T has 80 million customers and can’t text everyone. Hello? i am asking for a system generated autotext when my account rate changes. The rep then confessed that (4) ATT does autotext customers when their overage fee reaches a certain threshold – he said he thought it was around $100. I asked if ATT can autotext a customer at $100, then they can certainly autotext the moment the rate change occurs before the excess $100 is racked up by a customer who unwittingly exceeded their minutes. The ATT rep then said (4) they don’t do that because most people don’t want to be bothered. I asked, who doesn’t want to know that they have just entered overage fee territory? The rep then said (5) you would be surprised. try doing our job for a day. etc. etc.
Basically, listening to this ATT rep trying to justify why ATT refuses to alert customers via a simple, system generated autotext, that overage fee rates now apply, was truly an exercise in suspending disbelief. As I’ve said before, ATT is not interested in helping customers avoid overage fee charges. They’re too busy sticking their foot out so you can fall into their overage hole. Of course, ATT defends themselves saying that they’ve provided a myriad of methods for customers to check their minutes balance but they know full well from the huge boost to their bottom line that many customers still exceed their minutes unknowingly and by the time they do check, often the damage has already been done. Personally, if i received an autotext alerting me that overage rates now apply, i would immediately adjust my wireless phone usage to the MINIMUM until the next cycle begins. AT&T is behaving just like the big banks, taking advanges of predictable customer behavior to rake in large fees without any oversight or protection for the consumer. There is NO technological reason that ATT cannot provide a simple short text alert to customers to help them minimize the overage fees they otherwise occur. Come on people, get on that FCC website and let them know that you’d like some consumer protection! Meanwhile, AT&T can take their corporate platitudes about customer concern and choke on them!

Joel Rayos

I personally, enjoyed the story and it was beyond descriptive! I wish i was writing this comment to ATT&T themselves, the comment and suggestion is that AT LEAST! i believe we deserve free nights when it comes to data usage. In a technical sense im not to sure if its possible but anything is. But overall i extremely disagree with these data plans. Im so hesitant to even check my emails sometimes, i can definatlly consider my self frugal at this point. I mean i have no idea how many KB it would use to do anything so until i make myself a saving strategy (to not go over my minutes) i wont be enjoying my iphone to its fullest capability.

Zii Rios

ATT knowing that they can not handle the Iphone, and the data that it would require a consumer to use last year. They decide to limit the data this year this way they are guaranteed to bring profits that would allow them to build a better data structure.
Meanwhile Verizon has the ability, and can meet the demands of the Iphone. Let us be serious, and Iphone with limited Data is like a Ferrari that is only allowed 1 gallon of gas, NEVER a full tank.
Apps, Apps, Apps this is why we get the Iphone, all of them need Data. Consumers should simply move to the Droid Platform and use another network.
My Supervisor is an excellent example, she has had the New Iphone 4 and not even in one week she is at the 200mb limit.

Ray

Verizon arguably has the best network right now, their commercials notwithstanding. But don’t stick your head in the sand; Verizon is talking about it now and will eventuality tier and possibly meter data. It’s not a question of if, only when. The same is true of Sprint and T-mobile.

The issue is simple: for any access point like a cell tower and a finite swath of spectrum, there’s a physical limit to the amount of data that can be transferred. Adding spectrum can help in the short term but only delays the inevitable in the long run.

AT&T hit the wall first in some markets by an unfortunate combination of an immature network and the iPhone mob’s voracious appetite for data and a collective belief that “unlimited” meant just that. Anyone that actually took the time to read the TOS would have found AT&T’s definition: “unlimited” meant unlimited e-mail and web browsing.

I’ve not read a current version of Verizon’s TOS, but I’d guess it’s not too different from AT&T’s. I feel that way because if Verizon really could authorize their customers to consume “unlimited” data, then the company could surely reverse the rotation of the Earth and turn back time as well.

Sammie

These new pricing plans are absolutely awful. After having my iphone stolen, paying at&t to cancel that plan in order to get a new one, I was then informed that the 2GB is the highest available data plan… too bad I use about 8GB per month, which would come out to about $100 monthly for data alone. I understand that perhaps 65% consume about 1.5/month, but what about the rest of us???

jindofox

Sammie, how do you get up to 8GB a month? Surely not on just the iPhone …you’re tethering another device, right? The only way I could envision such high usage would be intense video streaming, which would kill your battery.

chadwick baker

well if you start streaming netfix movies you are to exceed the limits by a great deal…. 200mb = 20 min of streaming video, 2gb = 200 min, so with the data plus plan you will be able to watch 1 movie before exceeding your limit……

Joey J

I’m planning to start a new contract with AT&T when the new iPhone comes out. Does anyone know if it would be possible to sign up for the 200MB/month plan and then later switch to the 2GB/month plan if I decide that I need more data? Or vice versa?

genie

As my Sprint contracts ends I was going to leave and test the iPhone, but ATT data problems (they should’ve used their iPhone profits wiser) and Verizon’s “fee u 2 death” (hidden charges so they could lie in advertising) data charges make me want to stay with Sprint. I’m surfing EVO reviews, while I wait for NY to get 4G. Stupid to pay $10 a month for no 4g, in fact it’s stupid-er to require me to make that payment!

olusegun

I think the prices are to high. here in the UK free internet is included in my contract with a 1gb fair usage policy(i.e even if you go over it, you wont be charged. if you do this consistently for a few months and you get a lot of warnings, then your access is restricted)

If you get an android phone on your contract the limit is 3gb

If your on pay as you go it cost £1-1 day(40mb), £2.50-5day(40mb),£5-30 days(1gb)

If your on one of the older contracts its £7.50 a month with a 1gb limit

such low prices have caused wide adaptation. everybody uses the internet on their phones…even people with dumbphones. If you need to consume more data they are usb mobile broadband(1mb-4mb speeds)dongles so tethering is not really needed. although I do it occasionally on the odd train ride.
and if you want more data on your phone there are higher priced mobile internet add-ons that offer BOTH more data and higher speeds.

I think if the American networks adopted a similar pricing structure It would be more profitable. I have long wondered why phones are so expensive over there…$200 for a phone on a 2 year contract….pure extortion to me

Ramon B. Nuez Jr.

What is being poorly addressed by AT&T is its’ quality of service. The company will charge you more (or give you less) but the service in NYC is still rather terrible. This new revenue model is simply a move on AT&T’s part to capitalize on the mobile data monsoon on the way. Cisco VNI states that by 2014, mobile data will be 50 times what it was in 2009.

AT&T is forward thinking — thinking about all that profit.

Hortron

Exactly as Joebob & Chris said! My verizon contract is up at the end of the month, and goodness AT&T w/iphone is looking like they offer a great value! With verizon and a full featured smart phone I have to pay $30 month, and now with AT&T and an arguably better phone I can pay half that for data? score!

Chris

Prices were just lowered for 98% of customers, and a new, lower rate was introduced for the millions of casual users who were previously unwilling to fork over $30/month. That means more connected consumers, more phones, and more apps. All the while, billions are invested to expand capacity to meet growing demand.

That’s a good news story, economically, when good economic news is hard to come by. Only from an under-informed, ideologically predisposed point of view could that be considered anti-competitive or harmful to consumers at-large.

J

The 2% is true as a snapshot of today. The other stat was that the average iphone user is using 1.5MB. As apps, phones and mobile internet options improve, both of those will go up in the near future, which will either limit usage or cost a great deal of money.

Chris

A fair concern, but we’ve always gotten more bandwidth for less money over time, all the way back to when we had 14.4k modems and were paying Compuserve 30 bucks a month. What’s offered at any given point in time should be looked at as a reflection of consumer demand (in this case, 98% of customers), not a leading indicator of future demand. How was your wireless data five years ago in terms of price and performance?

Ray

Chris –

If you go back all the way to dial-up I agree, DSL and cable are cheaper per byte. However, five years ago I was a DSL subscriber and in my experience the service was cheaper per byte back then. To maintain roughly the same “naked” broadband monthly rate I’ve had to move to a lower tier of service. In my area a contributing factor is that there were choices for DSL providers back then. Now, there is only one and only two broadband providers overall: the phone and cable companies. Currently, The only real option I have to get a better price on broadband is to purchase a bundle, but that would increase the overall cost significantly with services I don’t really need or want.

Wireless is different because most markets in the U.S. are covered by three or more carriers. I would argue however that they tend to act more like a cartel than true competitors, which explains the anti-competitive nature of many of their business practices.

jindofox

To me, this pricing seems calibrated to get new customers to buy smartphones (that’s good!), but penalizes them for actually using them (that’s bad).

Jon

Very well said Jindofox.

Cheaper up front.
Overage charges much more common.

sounds like some bull !@#^$ to me.

Björn Smedman

This will create an interesting opportunity for Internet service providers; offer a cheap flat-rate mobile Wi-Fi subscription that ties in perfectly with the iPhone, works in most places and keeps your AT&T bill at $15.

Have a look at http://www.youtube.com/watch?v=l1YE6NS_lWY for an example of how convenient something like that could be (disclosure: I work on this).

Marc

LOL…from the looks of the comments, it seems that AT&T is in full damage control, getting their PR people to comment spam blogs with positive messaging.

T

When do these new AT&T Data plans come into effect? Because I am planning on getting a phone, want the DataPlus package, and I wanted it soon.

sandifop

Good for my wallet, bad for the mobile innovators like Apple and Google. This is going to place a practical limit on how much advantage the customer sees to new technologies and features that will quickly pass a 2gB limit.

Bob Jacobson

Funny, no one seems concerned that we have an effective wireless duopoly without effective regulation. That’s a formula for disaster so far as consumers are concerned. Yet there’s not even a peep out of Congress or even the community of users regarding this invitation to squeeze customers, now embodied in the billing practices of North America’s largest wireless carrier.

I lived in Sweden where I had unlimited service for a pittance of what American users pay, at speed that eclipse current offerings in the US, and that promised to only get better: cheaper, faster, more reliable, more services, and better support.

Are wireless users masochists? Oh bless AT&T, you’ve saved us $180 a month. $180 a month in savings? That’s four months’ service overseas. HOW MUCH ARE YOU PAYING? I guess it’s true, you get what you deserve, tech slaves.

Jay

Let me start off by saying I do not side with ATT. But the reason why the service here in the states is much more expensive than that of sweden is the coverage area. It is vastly more expensive to deploy and maintain a network the size of the US compared to that of Sweden. Urban areas are not an issue, but covering all the rural areas of the US is not very cost effective.
My recommendation is to drop the greedy ATT and switch over to a less greedy company (say maybe T-mobile, Sprint, definitely not Verizon).

jindofox

Check the article again. It’s $180/YEAR, or $15/month. Not a big deal except for the most price-sensitive (students, kids?) who were staying out of the smartphone game because of high fees.

Existing customers can keep their “unlimited” (not really) data plans.

If one wants to add tethering, it’s an unfair $20/mo fee just to keep your phone’s software switch turned on.

John

I’m currently based in Taiwan where I have an unlimited data plan with tethering for $30US a month. And the network is extremely fast. It’s going to be quite the shock when I return to the US at the end of the year.

Why is it that the US is so far behind Asia in data connectivity?

joebob

Over half of all AT&T smart phone customers started saving $180 a year today. Yet every story bemoans the loss of unlimited data which affects less than 2% of users who probably can and certainly should pay extra.

But here is the bigger story that you are completely missing. $15 a month extra for an iPhone is a total game changer. A rule of thumb in consumer marketing is that for every 10% drop in price on a unique product, demand doubles. Today they cut the marginal price by 50%. Demand will explode and the impact of so many people having iPhones is going to profoundly change telecommunications, computing and media. I am very happy about this change.

Stacey Higginbotham

It’s true that with a lower-priced entry plan, AT&T has a chance to attract new customers to smartphones and get them to use the data, which is good for broadening the base of customers and for AT&T, but the huge gulf between tiers and the lack of an unlimited plan (even an expensive one) is a concern.

Joesixgig

One thing that came out of the Ars Techica poll of today is that users who have jailbroken iPhones get much closer to the 2Gb limit due to higher use of background audio streaming. Combine that with Skype calling on 3G and the anticipated front facing camera, and it’s beginning to look like AT&T is going to rake in a lot of data charges from iPhone users.

Brett Glass

The pricing plan says nothing about competition. What it says is that AT&T wants to offer good quality of service (which means reining in bandwidth hogs) and make its service economically sustainable. Both good things.

Jay

Charging an additional $20 just to tether to your laptop doesn’t enhance QoS to anyone. The same 2GB of bandwidth is being used but ATT get’s a nice 20 dollar bonus per customer. As for economically sustainable, I have to ask if you on these guy’s payroll? The profit margin that these guys make is ridiculous. $25 for 2GB of data?? (Or $45 if that same 2GB happens to be from your laptop). The issue here is not sustainability, if that were the case they would purchase more spectrum in order to satisfy the bandwidth load (or maybe update their ancient technology to be more efficient). I don’t know how you can read this article and conclude ATT is fair and is doing what’s best. I am a RF Engineer and I know that if I were an ATT customer… I’d be looking elsewhere for a fair and reliable carrier.

ajbraun

Just curious Jay, you mention the profit margins for $25 for 2GB. What does it cost to deliver 2GB via 3G?

Ray

AT&T new plans don’t address it’s network capacity issues or bandwidth hogs. Current “hogs” will simple stick with there grandfathered unlimited plans.

Ironically, Stacy is wrong about one thing:

“… but AT&T’s method isn’t a forward-looking one …”

Their method is forward thinking and a sound business strategy: make the change now while it’ll have either no effect or a slight benefit to 98% of their customers. That way in the future when a significant portion of the 98% that didn’t care now start getting hit with overages (Does anyone think we’re going to be using less data over time!?), hey, well, “you should’ve complained way back when!”

Consumers often lack foresight; companies can’t afford to be without it.

steve

I wonder if the industry will ever be forced provide fair SMS pricing? (say at profit margins of less than 1000 percent)

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