Devouring data exacts toll; wireless industry may alter pricing

CHICAGO - Years of all-you-can-eat plans for mobile data usage are starting to give both wireless carriers and consumers a bit of indigestion.

The wireless industry may ditch unlimited plans in favor of data caps and tiered pricing, though such a move is likely years away. In the meantime, service providers are struggling to balance the consumption they encouraged, which is putting new strains on their networks, with the needs of customers who are increasingly reliant on their smart phones.

AT&T is the most prominent example of this dilemma, thanks to the popularity of Apple's iPhone and the App Store, where customers can load their devices with programs that deliver a local weather forecast or stream an Internet radio station. The iPhone has helped AT&T increase its average revenue per user and reduce the rate of customer defection to competitors. But the carrier also is working to bulk up its network in New York City and San Francisco, which have experienced sub-par network performance with the iPhone's proliferation.

"We all knew as an industry that mobile data would grow, and we saw these growth curves that were a 45-degree angle upward," said James Brehm, senior consultant at Frost & Sullivan. "But the true growth of the iPhone, when you chart it, looks more like a hockey stick."

Ralph de la Vega, chief executive of AT&T Mobility and Consumer Markets, caused a stir at an investment bank conference last week when he said the company is seeking ways to curb high usage by data hogs - namely, iPhone users. The executive said 3 percent of iPhone users account for 40 percent of traffic.

"If 3 are costing 40 percent, then we're going to focus on making sure we give incentives to those small percentages to either reduce or modify their usage, so they don't crowd out the other customers in the same cell sites," de la Vega said. For the longer term, he said AT&T might consider "some sort of pricing scheme that addresses the usage."

De la Vega said any new pricing would comply with Federal Communications Commission regulations on Net neutrality, or ensuring that applications and content are treated equally. Internet service providers have faced government scrutiny and consumer ire in previous attempts to limit heavy data usage.

Tiered pricing would mark a major shift from the way U.S. wireless subscribers have paid for data consumption.

"You're going to see some push back from consumers, but AT&T's not going to be the only one that's going to have to do this," Brehm said. "Every service provider out there is going to ultimately change the way ... mobile data is consumed and priced over the next few years."

Other wireless operators say that for now, they're able to handle the increased demand and preserve unlimited pricing through network improvements. T-Mobile, for example, has invested in new technology that aims to triple current 3G speeds and is compatible with existing 3G devices, meaning consumers won't have to buy a new phone to enjoy the faster speeds.

The carrier expects that smart phones will account for 40 percent of device sales in the fourth quarter. Raj Tank, vice president of engineering operations at T-Mobile, said the networks have to accommodate not just more smart phones, but also an expected "innovation wave that's going to happen with netbooks, e-readers" and other Web-connected devices.

"It's making sure we've got the capacity ... to have that wide open road for those hungry-data consumers," Tank said.

Sprint, meanwhile, is the first national carrier to roll out 4G wireless service. Todd Rowley, Sprint's vice president for 4G, said the company made an early leap into 4G to prepare for an expected onslaught of mobile data. The carrier also has accumulated spectrum so it can keep adding capacity, a strategy Rowley said should keep Sprint ahead of growth trends.

"It's a fair question to say: 'Do the carriers (with 4G) find themselves right back in the same situation they had with 3G in 2009 or 2010?'" Rowley said.

De la Vega said an important step AT&T is taking in the short term is educating users on data consumption. Most people have no idea how many megabytes are consumed when posting a Facebook update or watching a YouTube video.

Monitoring usage will be another big shift for consumers.

"We don't realize how data-intensive Web access and these applications are, and we don't care as long as we're paying a flat fee for unlimited usage," said Vipin Jain, chief executive of Retrevo, a consumer electronics shopping Web site. "As soon as you put a cap (on data usage), there's going to be a backlash."

(c) 2009, Chicago Tribune.

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