AT&T wants its iPhone users to use less wireless data, and it may consider new pricing models to curb users' data usage as it tries to keep up with growing demand.
At an investor conference in New York on Wednesday, Ralph de la Vega, AT&T's head of wireless, said the wiireless operator is considering incentives to get consumers to reduce their data usage. De la Vega said 3 percent of smartphone users are consuming 40 percent of the network capacity.
"We're going to try 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 those same cell sites," said de la Vega according to a transcript of the conference. "And you'll see us address that more in detail."
He went on to say that most consumers aren't aware which applications use a lot of bandwidth and which do not. For example, email does not consume a lot of bandwidth, whereas streaming video and audio do consume a great deal of bandwidth.
"What's driving usage on the network and driving these high usage situations are things like video, or audio that keeps playing around the clock," he said, according to the transcript provided by AT&T. "And so we've got to get to those customers and have them recognize that they need to change their pattern, or there will be other things that they are going to have to do to reduce their usage."
AT&T has been struggling to keep up with demand for wireless-data usage on its network. The iPhone, launched more than two years ago, has revolutionized mobile Web usage. The device, which was built more for accessing the Net than making calls, can access more than 100,000 applications, many of which use the mobile Internet.
iPhone users on average consume five to seven times more data per month than average wireless subscribers, according to analyst firm Sanford Bernstein. And all this usage is clogging the network, causing many iPhone users, especially in large cities such as New York and San Francisco, to experience dropped calls, slow 3G service, and issues connecting to the network at all.
AT&T has been reluctant to admit that there is a problem, but recently, the company has acknowledged that problems exist. According to The Wall Street Journal, de la Vega admitted that New York and San Francisco have been experiencing service issues. And the company recently launched an iPhone application that allows users to report service problems.
AT&T has been upgrading its network to the next generation of 3G wireless service to increase network capacity. But now the company is saying it needs to actually curb usage in order to get a handle on demand.
De la Vega didn't provide specifics about how the company would actually get consumers to use less data. But he said that a usage-based pricing model may be considered in the future.
"I think longer-term, there's got to be some sort of a pricing scheme that addresses the usage," he said. "But that's going to be determined by industry competitive factors, regulatory factors and customer [successes]."
The idea is that usage based pricing may actually deter consumers from using high-bandwidth applications. Unlike voice service, which is already tiered, wireless-data service is charged at an all-you-can-eat flat rate. iPhone users select a voice plan, then pay an extra $30 a month for unlimited data usage. By contrast, AT&T has limited the amount of data that its wireless-data card users can consume each month to 5GB. After that limit has been reached, customers who use the AT&T network to access the Net from their laptops get charged more based on their usage.
But asking iPhone users and other smartphone subscribers to cut back on their data usage may be somewhat unrealistic, and it could actually stifle innovation and development of the mobile Internet.
AT&T seems to realize that this is not a long-term solution. And not only is the carrier upgrading its network, but it's also asking the Federal Communications Commission to find more spectrum to auction off that can be used for wireless-data services. Jim Cicconi, senior executive vice president of external and legislative affairs for AT&T, said in a separate interview with CNET on Wednesday that something needs to be done to deal with the flood of wireless-data traffic.
Cicconi and AT&T's CEO Randall Stephenson met with FCC staff members earlier this week to discuss the spectrum issue.
"Clearly, there is a looming crisis that needs to be addressed when it comes to spectrum availability," Cicconi said in an interview at his office in Washington, D.C. "Wireless-data usage is growing far faster than anyone had expected. And if we don't do something soon, we will run out very fast. And then we will have to start telling wireless customers that they can't do all the things they want to do with their devices."
FCC Chairman Julius Genachowski has made freeing up more spectrum a top priority. And he has already proposed that the FCC look into taking some spectrum away from TV broadcasters to give to wireless operators to deliver more wireless-broadband services.
Naturally, the TV broadcasters oppose such a proposal.
Verizon Wireless, AT&T's main competitor, has already amended wireless-data pricing for its low-end phones in an effort to squeeze out more revenue from users. But drastic changes in data pricing could scare off some customers and curb smartphone adoption altogether.
By Marguerite Reardon