Free ride ending for U.S. wireless bandwidth hogs

June 2, 2010

By Rolfe Winkler

Bandwidth hogs are losing a big trough. AT&T on Wednesday became the first major U.S. mobile service provider to shift from an all-you-can-eat model to tiered pricing for email and Internet access.

The decision is likely to cut into sales at first, but could improve the company’s long-run profitability and end nightmarish network problems. Customers look to be the early winners, while conditioning them to pay for usage should provide a longer-term victory for carriers.

AT&T is shrewdly pricing the plans to keep customers happy. Most should actually see bills decline. Users who consume less than 200 megabytes a month, 65 percent of them according to AT&T, could pay $15 instead of the current $30 for the unlimited plan. Considering how unhappy many customers are with the service, widespread price increases wouldn’t have gone down well.

Even though the heaviest smartphone users will pay more, AT&T’s average revenue per user will probably dip. The company expects little impact on 2010 sales, but JPMorgan estimates service revenue could fall as much as 5 percent on an annualized basis.

Any hit to short-run revenue will be a price worth paying if customers can be convinced to pay for consumption. As things stand, the capital expenditure required to support iPhone users means they may be worth nothing to AT&T, according to research firm Sanford Bernstein, although the company disagrees.

Better network quality requires investment, and consumers are now being pushed to pay. Despite the competition, prices should rise over time, especially as bandwidth usage continues to swell. AT&T’s decision appears to rely on rivals also forcing those clogging the networks to shoulder most of the burden of improving the mobile plumbing. It seems a good bet, for if other providers don’t follow suit, they’re apt to attract the feasters who cause dropped calls and slow downloads for everyone.

Comments

Funny that high users of bandwidth are called hogs. Especially when every single commercial and advertisement for internet connectivity extols the virtues of using the Internet for everything.

They want you to use lots of bandwidth, but only if the usage is metered so that they can charge you an arm and a leg. The fact of the matter is that “hog” usage is going to become the norm. As more people get on line to pay their bills, watch TV, make travel plans, look for work, etc… the Internet becomes more and more of a necessity for average users. This type of pricing model will be used to bleed people dry by charging for every single activity on the net.

Metering also opens the door to privacy invasion. It’s not a far reach from logging access times to logging access content. Metering also encourages companies to put off upgrading and expanding bandwidth capacity. Slower networks require more time on line to download the same amount of data. That can translate into higher costs for consumers for lower quality service.

Tax payers helped to build the Internet backbone throughout the Nation. They should remember that and not allow telecoms to nickel and dime you out of the Internet.

Posted by Benny_Acosta | Report as abusive
 

The toll is going to be high on internet junkies, but at the same time low internet users will have their bill slashed.
It is a good thing in the short run.
But if we consider a long term projection, internet usage will eventually grow for everyone indiscriminately at an exponential rate and so will the revenues of the telecoms who adopt pay as you go plans.
I recall a couple of weeks ago telecoms were trying to tax google because its ads and youtube were syphoning a huge chunk of the bandwidth. CEOs getting greedy and jealous, huh?
If the fad takes on, no more all you can eat buffet for the users.

Posted by Uriel | Report as abusive
 

Excellent post. The way Felix has been having conniptions on this topic, you would think business aren’t free to set prices on their products!

Posted by DanHess | Report as abusive
 

[...] now that AT&T has eliminated its all-you-can-eat plan for smartphones, you will blow through the maximum 3G usage for the entry-level 200 MB plan if you watched just 4 [...]

 

I love how AT&T states “better aligned with natural consumer behavior.” It seems that AT&T is (re)defining “natural” and telling its subscribers that they really don’t need unlimited plans.

Listen, this has nothing to do with what “natural behavior” but everything to do with protecting its infrastructure. The smartphone ecosystem is growing aggressively and by 2014 mobile data traffic will increase 50 x’s what it was in 2009. The majority of that traffic will be user generated and video. Additionally — Cisco’s VNI report states that by 2014 the data traveling the Internet will be 63.9 EB per month.

AT&T understands these numbers intimately and they will jealously defend its infrastructure. Additionally, AT&T is in in the process of upgrading its radio interfaces to HSPA+ and LTE. They will need to upgrade their core network to 4G — for LTE Advanced. This is a fare amount of CAPEX and OPEX being invested — someone has to pay for it.

Posted by ramonbnuezjr | Report as abusive
 

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