Last Updated Jun 2, 2010 2:30 PM EDT
It's a great short-term financial move for AT&T, especially as Verizon is likely to follow suit. As long-term strategic planning, this is as stupid as a sun dress on a goose. Carriers will squeeze their customers, screw business partners like Apple (AAPL) and Google (GOOG). The result will be that the carrier-gatekeepers hamper innovation in the entire Internet industry so they can collect what they think is their due.
AT&T will keep the old $30 a month charge for unlimited data for existing customers. New customers will choose between a $25 monthly fee for up to 2GB of data a month (each additional gigabyte is $10), or a $15 plan for 200MB ($15 for each additional 200MB).
This change has been in the works since at least December, when AT&T head of consumer services Ralph de la Vega said that the company wanted to "reduce or modify" consumer data use. Carriers have talked about the greedy users who "who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month," as Verizon CTO Dick Lynch said to the Washington Post in January.
AT&T claims that the $15 plan would satisfy 65 percent of its smartphone users and that the $25 plan will provide enough for 98 percent of customers. Ironically, that shows how false the carriers rationale for the change actually is.
Last December, Berstein Research analyst Toni Sacconaghi estimated that the average AT&T iPhone customer uses only 251 megabytes of data transmission. If AT&T had problems with only 2 percent of its users, and 65 percent were what you could call low-volume users, the company could have found a higher cap at the old price and still avoided overwhelming its network.
No, AT&T wants the cap to accomplish two goals. One is to increase the company's revenues. Anyone who claims that limits are necessary to keep the wireless business profitable either has a vested interest in creating such a consumer perception, or simply doesn't work through the numbers.
Compare this to any phone plan that has a cap on the number of minutes the customer has. Go over the limit and you pay by the minute for the extra. AT&T clearly sets the limits to maximize profit. It counts on people either not using all the capacity for which they pay or on exceeding limits and paying premium prices. As with all carriers and many other subscription business models, AT&T makes money on what consumers don't use. Furthermore, artificial limits reduce additional necessary infrastructure investment.
De la Vega says that consumers will be able to track their usage online. As if that will do any good. According to the FCC, most people don't even know the speed of their Internet connections at home. The concept of how much data passes through their handsets will be equally nebulous. Keep up with the billing intricacies? Again -- save it for the shareholders and others who want to believe the hype:
A similar survey conducted by Abt/SRBI and Princeton Survey Research Associates International from April 19 to May 2 also found that one in six American mobile phone users have been shocked by surprise fees and charges in their monthly bills.The other goal of the cap is to create a competitive barrier. AT&T offers a lower, highly profitable price to convince more people into getting an iPhone from the carrier. Should Verizon also get to sell Apple's products, the units will use a different wireless technology from AT&T's, so the iPhones won't work if users jump ship and AT&T helps lock down much of the growth it has seen as a result of the iPhone.
I mentioned Apple and AT&T, but you could substitute Google and Verizon. The device manufacturers, as well as many Internet-centric companies, get screwed because they focus on innovation and enabling new types of services that require free movement of data. That creates ill-will. Even if companies cannot openly express it yet, they will when they can. In the meantime, AT&T and Verizon will make more in the short run but miss the huge opportunities that new approaches to communications and computing -- and a market growing at a quick clip -- could open.
Image: Flickr user robstephaustralia, CC 2.0.