Wednesday, December 17, 2014

Watch out for trap in new AT&T pricing

As predicted, AT&T Wireless is moving away from all-you-can-eat data pricing in time for introduction of the new Apple iPhone. New customers will have a choice of two metered plans, and will pay $10 for each excess gigabyte. Is it a necessary move, or shooting the burgeoning smartphone market in the foot?

Watch out for trap in new AT&T pricing

AT&T Wireless calls them "New Lower-Priced Wireless Data Plans to Make Mobile Internet More Affordable to More People."  I may be in the minority, but I suspect the company is shooting itself - and the burgeoning smartphone market - in the foot.

AT&T says it will charge new subscribers $15 for up to 200 megabytes a month, or $25 for up to 2 gigabytes. Extra gigs will be $10 each, and the company promises to warn users before they reach their limits.

The initial reaction seems to accept AT&T's pitch that for the vast majority of its customers, the new price structure will be no big deal.  Nearly two-thirds use an average of less than 200 megabytes a month, the company says, adding:  "Currently, 98 percent of AT&T smartphone customers use less than 2 GB of data a month on average."

As the Business Insider put it, "In a change that will infuriate a tiny subset of iPhone/smartphone users and please the rest of them, AT&T is moving away from "all-you-can-eat" wireless Internet plans."

But there's a logical flaw in conclusions such as Business Insider's - a flaw well-hidden behind words such as "currently" and "on average." AT&T isn't disclosing the patterns of demand behind its decision, but here's my wild guess: usage is rising, and would be climbing much faster if AT&T did a better job of addressing its network's shortcomings.  Apple, AT&T, and their smartphone competitors have built a new mobile Internet, and users have predictably come - they want to use it. 

I'm an iPhone customer, and I just looked online to check my data usage because I wouldn't know a mobile gigabyte if it slapped me in the face. For the first three weeks of my current billing cycle, I'm under 99 megabytes.

So I'd be safe to switch to one of the lower-priced plans? Hardly.

For one thing, my usage would already be higher if AT&T's network worked everywhere I'd actually like to use it. Last I checked, for instance, I still couldn't get data at Philadelphia's Citizens Bank Park during a Phillies game.

And then there are all the iPhone apps I might want to experiment with, as well as the ultimate - and data-hungry - promise of a smartphone: video.  I have no real interest in streaming TV shows or movies to my phone, but I could see using it to video-chat with my far-flung daughters, or to watch the occasional ballgame. (AT&T says 2 gigs should be plenty for an array of uses that includes 200 minutes of video - less than many baseball games.)

I don't know the solution to the supply-demand equation here, but I'm willing to predict two things: More than 2 percent of AT&T customers will be complaining about data overages, and the company will once again offer an unlimited-data plan - though perhaps at a higher price point than the current $30 a month.

And one more thing: Until it does, fewer people will be willing to try out all the great new stuff being developed for the mobile Internet.

[UPDATE] M. Chris Riley, of the Free Press advocacy group, made several good points in an email - especially about the limits to competition imposed by handset exclusivity.  (He, too, points out that "today's heavy user is tomorrow's average user.")

Riley calls it price gouging to charge low-end users $15 for 200 megabytes, and to finally allow "tethering" - enabling iPhone users to use their phones as Internet modems - but only for an extra $20 a month even if no additional capacity is used.

Riley adds:

If there was true competition in the U.S. mobile market, providers would invest in their networks to keep pace with consumer demand, removing the need to implement usage-based pricing plans. The fact that AT&T can introduce an Internet overcharging scheme that bears no resemblance to the cost of operating the network, despite constant complaints about the network's quality, further demonstrates that our wireless markets are not competitive. Unfortunately, until the FCC takes seriously the need to promote meaningful competition in the wireless industry, Americans will continue to face a market of high prices and poor service.

This pricing ploy further illustrates why we need the FCC to put an end to the anti-consumer practice of handset exclusivity. For the wireless market to be competitive, consumers must be free to choose both devices and services, and take their devices to any compatible network.

 

 

Jeff Gelles Inquirer Business Columnist
About this blog

Jeff Gelles, who writes the Inquirer's weekly Consumer 14.0 and Tech Life columns, takes a broad look at the marketplace of goods, services, and ideas.

Reach Jeff at jgelles@phillynews.com.

Jeff Gelles Inquirer Business Columnist
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