The end of unlimited data is nigh! As I discussed in yesterday’s post, AT&T’s announcement of limited data packages at lower prices has everyone up in arms. But the switch to a-la carte data is a positive move for everyone involved, including AT&T, the customer, and the US wireless phone industry as a whole.
Reality Check
Despite the hollers from the crowd, AT&T is not proposing pay-per-byte service. Their new plans serve up moderate (200 MB) and generous (2 GB) portions of data at much-reduced monthly fees of $15 and $25, respectively. Overages trigger large additional blocks of 200 MB for $15 or 1 GB for $10, respectively, and those on the smaller “DataPlus” plan can upgrade to “DataPro” on demand during months of heavy usage.
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AT&T claims that 98% of smartphone users transfer less than 2 GB of data per month, and I’m betting that’s true even of iPhone power users. Of course, some people might use crazy amounts of bandwidth: Video streaming, Internet radio, and tethering come to mind. But I wonder how much data even the first two will require once they become available and popular. An hour-long podcast is about 25 MB, so Pandora, iTunes Live, and Spotify are presumably about the same. One could listen to those sites for 80 hours a month without exceeding AT&T’s new $25 2 GB DataPro package, and an additional 40 hours (1 GB) would only be $10!
The carrier also claims that 65% of smartphone users will be able to save money by opting for the $15 200 MB plan, and that this will drive further adoption of smartphones. Heavy iPhone users probably make up the outlying 35%, but the more-casual iPhoners will be able to cut their bill in half by selecting this plan.
Easy Savings
My own household includes three iPhones. My iPhone 3GS usage hovers around 400 MB per month, and I frequently stream audio from MLB.com At Bat and my favorite podcasts over the air. The other two iPhones average just 50 MB per month, with the occasional spike of around 100 MB. We currently pay $80 per month for data service: Two 3G plans at $30 and one original plan at $20. Under the new system, we can reduce our monthly data bill to $60 by switching the 3G phones to the $25 and $15 plans, respectively.
Don’t know how to stream big podcasts? Check out my article, How To Stream Any Size Podcast to an iPhone, Even Over 3G or EDGE!
We could trim the cost even more by moving both 3G phones to the $15 DataPlus plan and judiciously switching to DataPro during months of increased usage. I could also make more-frequent use of free Wi-Fi service at Starbucks, McDonald’s, Panera, and the local coffee shop, or flip on the Cradlepoint PHS300 and use my unlimited EV-DO hotspot. I imagine most iPhone users could economize similarly.
Follow the Money
Unlimited data plans hurt us all, forcing us to pay for the excesses of a few and limiting the availability of the coolest devices. Let’s get back to AT&T’s numbers for a moment. According to AT&T, only 2% of their smartphone customers transfer more than 2 GB of data per month. With everyone paying the same flat rate for unlimited data, each of those data gluttons was being subsidized by the bills of 50 regular subscribers. This kept monthly data fees artificially high and limited the adoption of smartphones in general. Even the iPhone, a smashing success by any measure, probably lost customers due to the high cost of data service.
But it gets worse. If 65% of smartphone users consume less than 200 MB of data per month, and AT&T can make money selling that much data at $15, then the company was pulling in seriously-massive profit margins until now. AT&T has between 15 and 20 million customers using smartphones, so this represents at least $150 million in monthly profit. All but the heaviest 2% of data users were profitable, and the company was gouging everyone else and pocketing the cash. Sure, they’ve spent some money on upgrades, but the AT&T 3G network is notoriously bad, from bottlenecks and dropped calls in New York to poor coverage in the heartland.
Then there’s the sorry state of competition among mobile phone carriers in the United States. Thanks to carrier locks and exclusive deals, the price for wireless data service remained fairly static until now. Unlimited data at $30 became an unofficial fixed price, and as Planet Money noted recently, price ceilings tend to act as a magnet. Perversely, the widespread availability of unlimited data plans kept prices artificially high. Until AT&T’s announcement, no one was willing to make the first move and initiate real competition.
Stephen’s Stance
Many criticized yesterday’s article, claiming a “peace of mind” benefit from “all-you-can-eat” offerings. I can understand their desire to know exactly how much their bill will be, no matter what their teenagers decide to do with their phone. But they should also consider that, all this time, they were subsidizing data gluttons, getting ripped off by their carrier, and restraining competitive pressure to lower prices. How much are they willing to pay to achieve a bit of mental calm? And aren’t these facts troubling, too?
I can’t wait to see Verizon’s response. AT&T’s pricing changes and their recent early-termination fee modifications mean they’re scared to death. Perhaps the rumors of Verizon iPhones and iPads aren’t off-base after all. At long last, we might be witnessing a real shake-up in the American mobile device market, and that’s something we can all cheer for!
It’s not all roses, though. Unlimited data promised to usher in a new era of mobile video and other innovative applications. It also posed potential competition for wired broadband providers, another market in serious need of competitive pressure. I’ll take a look at the downside tomorrow.
“Payday Loan Place Window Graphics” image by taberandrew
Stephen,
Your arguments for more billing plans is well-taken, and even appreciated. My gf, for instance, uses far less than 200MB of data a month, and we can’t wait for her to get onto the smaller plan for exactly the reasons you’ve cited.
However, my intention was to use the iPad (when I got one) because the draw for me was the promise of some of the more heavy-usage apps. WebEx, Netflix, etc. I don’t currently use those applications on my iPhone because of the form factor, so comparing my current data usage to my expected usage isn’t appropriate.
Now, however, there is a serious question about the wisdom in purchasing an iPad (I tried yesterday, but there are none to be found anywhere in stock in the Bay Area, apparently). After all, if I can’t use it the way I had intended to use it, where is the compelling reason to purchase it in the first place? The fact that I can do *other* things with it isn’t a good enough reason, since I could do those *other* things anyway.
Ultimately I think there’s an accordion-effect with these plans. They expand and contract over time. There are always new promotions – if you don’t like the one you’ve got, wait 6 months. I guess if the competition heats up over Android-based tablets vs. iPad, Android-based phones vs. iPhone, Verizon vs. AT&T, we may soon see a return of a high-usage option just in time for holiday promotions.
Stephen,
I don’t disagree that many will benefit by having lower priced options, and checking my data usage (for the first time), I find that I fall well below the 2 GB level.
However, I have to wonder if 98% of subscribers fall into lower usage categories, why is AT&T going to this trouble? They should be happy to collect $30 a month and use us to subsidize the rate hogs. I tend to think that they are looking to the future and expect that with iPads, increased numbers of video streaming options eventually coming to iPhones along with new features like video chat, people are going to WANT to increase their data usage. So what looks like a great deal now for consumers, may not be so hot a year from now when we’re all in the multi-GB range streaming Hulu and whatever.
I have appreciated the two articles in the series. I like the idea of unlimited pricing, but I support the move to graduated pricing. In the two and a half years I’ve had my first-gen iPhone, I’ve averaged 90MB/month. However, for three reasons I think AT&T is showing their idiocy as a company, and I am still in the following boat:
I will probably NOT purchase a next-gen iPhone because I hope the rumors of using an iPhone on another network are true, and I don’t want to be locked into AT&T when that happens. Yes, AT&T’s general stupidity as a company is hurting Apple’s bottom line.
Reason 1:
The main reason for disallowing tethering so far (read: forever), has been that AT&T is scared of heavy usage that might ensue. If you’re going to meter it anyway, why do you need to charge an extra $20 for this false-service? AT&T isn’t ‘providing’ a service by allowing tethered data, Apple has done that work. Instead, AT&T is spending money to prohibit users who don’t pay an extra $20 per month from using tethering.
Reason 2:
“Overages trigger large additional blocks of 200 MB for $15 or 1 GB for $10, respectively, and those on the smaller “DataPlus” plan can upgrade to “DataPro” on demand during months of heavy usage.”
This shows that AT&T isn’t concerned with providing me with the service that best fits my needs, they simply want to gouge me. Why not simply charge usage up to 200MB at a flat $15, up to 2GB at $25, and any over that is an additional $10/GB? Why do I have to jump through hoops to temporarily upgrade to the DataPro plan? Because they’re not concerned with keeping me as a customer, they would rather leach every penny out of me they can before I go to another company.
Reason 3:
As other commenters have pointed out, unlimited data scales as average data usage increases. Metered data simply doesn’t. I don’t trust AT&T (or any wireless provider) to reduce the cost of metered plans as the cost to provide that data access decreases.
This is just pure lunacy. I love my iphone. I like Apple. I hate AT&T, and mostly hate the whole mobile industry. I just keep hoping that I will soon be able to buy a data-only iphone and use VOIP for all incoming and outgoing calls. (my other big complaint with the mobile industry is the utter lack of voice quality caused by allocating fewer than 9 kilobits per second for voice calls)
But keep the thoughtful articles coming.
1) Negotiated discounts on AT&T do apply to the data plans, and this hasn’t always been true. (My employer negotiated 24% off, for example.)
2) Until the other shoe drops, I wouldn’t be quick to crow about whether this is a good deal or not. What random add-on costs will be required if the video phone some day works on 3G?