Blog Post

Who’s eating up AT&T’s data capacity? It’s not new customers

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

smartphone usersWhat does a mobile network hosting 41.2 million smartphones look like? A network where growth in data traffic far exceeds data revenue growth. AT&T(s t) is selling a lot of smartphones and data plans, but even millions of new iPhone (s aapl)customers don’t fully account for the huge spikes in mobile data traffic AT&T is experiencing.

AT&T’s first-quarter earnings numbers show that new smartphone customers aren’t the ones straining its data networks. Rather AT&T’s chickens have come home to roost. Customers are finally starting to consume the big buckets of data AT&T is selling them, taking their fair share of network capacity while not paying more for the privilege. Consequently AT&T is seeing a massive increase in data traffic without a corresponding jump in data revenues.

Revenge of the tiered pricing plan

During AT&T’s Tuesday earnings call, Mobility CEO Ralph de la Vega revealed that AT&T had added a net total of 10 million new smartphones over the past year. The devices now account for nearly 60 percent of its postpaid subscriber base. De la Vega also revealed that AT&T’s wireless data revenues are tracking about $24 billion per year, growing at steady rate of more than 20 percent per year.

But AT&T has pointed out before that data traffic on its mobile networks is actually doubling each year. So that means a 100 percent annual increase in mobile gigabytes shipped is being driven by a mere 32 percent increase in smartphones. What’s more, AT&T is only collecting a few billion dollars more in revenue to handle that deluge of new data.

The lion’s share of AT&T’s data traffic growth isn’t being driven by new smartphone customers; it’s coming from its existing subscribers, and for the most part they’re not paying more for that extra consumption. AT&T’s numbers would indicate that many customers are getting a lot a closer to their data caps without exceeding them. Basically they’re consuming more data while still paying the same amount on their monthly bills.

Some of those customers are AT&T’s grandfathered unlimited customers, but they’re a shrinking minority, accounting for 39 percent of smartphone customers in the first quarter. Plus, AT&T has begun throttling back speeds on those customers once they exceed 3 GB on HSPA+ and 5 GB on LTE. That means most of AT&T’s data traffic explosion is coming from tiered plans, which makes sense if you look at AT&T’s pricing structure.

Of the 25 million smartphone customers on tiered plans, 70 percent subscribe to an upper-tier plan, which means a 2 GB plan under the old pricing scheme and a 3 GB plan under the new one. But in a recent study, wireless analyst Chetan Sharma found that 70 percent of smartphone users in the U.S. consume less than 1 GB per month, which is one-half to two-thirds less than the amount of data most of AT&T’s customers are actually paying for. There’s been a huge disconnect between the amount of data customers buy and the amount they actually use, but that gap is finally starting to close.

Capacity crunch or poetic justice?

As you have probably figured out by now, AT&T’s capacity crunch seems to be a problem largely of its own making. Customers are finally growing into the data plans, and they’re eating up all of AT&T’s mobile data network capacity in the process. I should also point out that AT&T’s networks have also become far more efficient than they used to be, allowing it to deliver more bandwidth over the same infrastructure and spectrum. When the iPhone 3G first launched in 2008, the typical AT&T HSPA cell could support a theoretical limit of 3.6 Mbps. That number is now 14.4 Mbps. An LTE cell using the same amount of spectrum can theoretically support 37.5 Mbps.

So I wouldn’t feel too sorry for AT&T, despite all of its claims of being broadsided by traffic demand. When it set up its current tiered pricing structures, it knew its customers would eventually scale their usage to match their monthly allowances, and they’re still a long way from even getting close to those caps. If AT&T didn’t know this, then it never should have offered 2 GB and 3 GB tiers in the first place.

This is what infuriates me about the way the operators price data. The per-megabyte cost we pay for mobile data has actually fallen considerably in the past few years, but we wouldn’t know that by looking at our bills. If carriers from the beginning had set reasonable plan tiers that actually reflected how customers consumed data, operators could have gradually lowered prices as their networks became more efficient. It’s probably a stretch to say they would have come off as heroes, but their mobile data policies probably wouldn’t be vilified the way they are today.

Instead, they chose to gouge customers by selling them far more gigabytes than they could possibly use. Now that customers are starting to actually use up those gigs, carriers are claiming they’re running out of capacity. Didn’t you guys see this coming?

14 Responses to “Who’s eating up AT&T’s data capacity? It’s not new customers”

  1. Thank you for saying what I’ve been thinking for the longest time. I’ve been on AT&T’s 2GB plan using about 400mb/month on average. In recent months though with increased sharing of videos/photos and HBO GO I have finally started hitting the 1GB mark… For so long I wished they had a 500mb plan so I wouldnt keep paying 4 times what I consumed. Now I will teach them a lesson by running up to 2GB each month!

  2. Sassy Lou

    AT&T Oh puhleeze…mobile portable media and cloud data download is the future. Either open the floodgates and provide cheap ISP services or go home and die for all I care!

  3. I think the doubling of traffic that AT&T mentioned was actually wireless traffic including both cellular and wifi. Stripping out the wifi would give a lower 2011 growth figure for cellular. I am sure I read another article on gigaom that noted that distinction

  4. Otto Whosoever

    I don’t know how much of a impact this has but AT&T is also selling bandwidth to the alarm industry for cell back ups. The biggest being Honeywell that launched a service called Total Connect thar streams video as well as alarm system info.


  5. Michael W. Perry

    As you hint, the game cellular companies having been playing is catching up with them. Some customers are now using most of what they’ve been paying for, something these companies probably hoped would never happen.

    It’d make more sense to bill data much like long distance used to be billed, with per byte replacing per minute. That’d also let them charge less for off peak hours, spreading demand out.

  6. Ron Larson

    AT&T & Verizon plan strive to have a wireless duopoly. Then they plan to create an artificial shortage of capacity. This allows them to justify raising prices.

    If these two lock up most of the spectrum in the US, then they have no incentive to make that spectrum more efficient. They don’t care that you can’t get the bandwidth you paid for because they know you can’t go anywhere else. Both are equally bad. Once this plan is in place, then they can start jacking up prices and raking in profits. Our bills will skyrocket, but we won’t get any more service for the extra money. It will all be pure profit for them.

    It is going to get really, really bad in the future. Sad.

  7. I for one am on unlimited data, and refuse to use less than 5GB per month. for 30$ a month, I deserve the same amount of data allowed on a wired network. A paltry 3-4% allotment of what DSL customers get in 150GB caps is downright thievery by AT&T and Verizon. Yes, I’m getting “throttled” to 250kbps on 3G service after hitting 3Gb. But I’ll continue to cross 5Gb of audio content each month and pay AT&T not one cent more.

  8. Brent Leasure

    its funny b/c the author seems to be FOR tiered data plans which are an incredible rip-off compared to the former ‘unlimited’ data plans offered at the same/similar monthly rate. The fact that people are using their allotted bandwidth right up to the max allowed by their tier makes me wonder if they would use that much bandwidth on an unlimited plan.. If i am paying to use exactly 3gb per month, i think i’d be more inclined to try to use all 3gb each month (stick it to the man!). whereas if i’m paying for (supposedly) ‘infinity’ amount of data each month, there’s no possibility of using it all and therefore no ‘need’ to try to do so…

    on my grandfathered-in unlimited plan with Verizon/iPhone4S, i have used a little over 2gb this month (i never check my usage and had to google how to actually do it). I think the way i use my phone goes far beyond the average user being a nerd and all.. i think Siri is mostly to blame though..

  9. F- at&t and anyone who complains that people are using what was sold to them! If you sell unlimited and people were using it, then they complained and said “it’s slowing down our networks… blah, blah” you freaking sold me unlimited data but once i start using it, then you scream bloddy murder! Now that people are finally using the stuff (that was sold to them) AT&T is complaining that people are using what was sold to them? They can ki$$ my big A$$!! It’s like someone selling you a car that claims to last forever, but then complain that you never buy a new one cause the one that was sold to you last forever. – What a bunch of hypocrites.

  10. Mark Kelley

    Of course this is not at all an exclusive problem limited to AT&T, but one of all carriers. As in the air interface “wars” of 10 years ago, the solution will be found through technology, and entrepreneurial firms that solve them. For mobile data consumption to rise to a 10X level over today’s level – where it’s headed – demands a 10X decrease in cost per Mbps/square km delivered.