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.

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