Why AT&T's New Data Plan Will Backfire -- on AT&T

Last Updated Jun 8, 2010 6:00 AM EDT

AT&T's (ATT) decision to end its unlimited data plan may pay short term dividends, but in the very near future the data limits it imposes will seem laughably small. This will leave AT&T customers in the awkward position of having to keep an eye on the meter, while giving competitors like Sprint (S) and T-Mobile (DT) a strong selling point.

According to AT&T, less than 2% of its users consume more than 2 gigabytes per month, the cap on the larger of the two plans its offering. But it would be foolish to expect that statistic to endure. A recent Morgan Stanley (MS) report on the mobile sector estimated that consumer's data consumption on mobile devices will more than double every year for the next three years. That is especially true for tablet devices, where AT&T is now partnered with the strongest offering, Apple's (APPL) iPad. As Wired magazine pointed out, its offering for the iPad, which has been selling like hotcakes, would consume a quarter of the smaller 15$/month data plan. Put two or three magazine subscriptions together and users could easily start to run into the red.

Comscore's most recent report shows video and photo sharing by mobile users is up 90% in the last year. And the hottest new phones, like the iPhone 4 which premiered today, are adding front facing cameras for video chat. Streaming a single, hour long TV show eats up 550 megabytes, more than a quarter of the data on the larger of AT&T's two plans. Factor in hours of streaming music from services like Pandora and Rhapsody and a lot of entertainment starts to look off limits to AT&T customers.

Add all this up, and should come as no surprise that Reuters is reporting Sprint and T-Mobile have no plans to end their unlimited plans. The downside for AT&T, most critically, will be a psychological one, perhaps compounding the already widespread view that its service is spotty. "Forcing people to become clock-watchers has never worked in America," Bob Bowman, chief executive of MLB.com, told the NYT. "The cable industry is living proof that people would rather pay for 300 channels they never watch rather than get metered."

Image from Flickr user dreyboblue

  • Ben Popper

    Ben Popper writes at the intersection of culture and technology. His work has been published in the NY Times, Washington Post, Fast Company, Rolling Stone, The Atlantic and many others. He lives at www.benpopper.com.