AT&T has begun imposing limits on smart phone data consumption, potentially setting the stage for metered pricing for the industry. The cap for the company’s smart phones is a two-tier structure, $15 per month for 200 megabytes and $25 for 2 gigabytes.
Craig Moffett, an analyst at Bernstein Research, notes the reaction to AT&T’s decision to impose a rate cap was predictable but came in concert with Telefonica’s decision to impose similar rate caps on its smart phones.
“Most of what has happened in the wake of AT&T’s announcement of metered wireless pricing has been predictable,” said Moffett. “Bloggers—a self-selected group of heavy users if there ever was one—have howled that AT&T is alienating their inalienable rights. Apps developers have foretold the end of the world as we know it. Consumer groups have charged that AT&T is running their business with a profit motive.”
No Other Followers—Yet
Thus far, other companies have not followed AT&T’s lead, Moffett notes.
“True, it was announced that Telefonica’s O2, which also happens to be an iPhone carrier, has abandoned the all-you-can-eat model, adopting low-end caps that are higher and high-end caps that are lower than AT&T’s. Perhaps O2’s move portends more announcements to come in the U.S., or perhaps not. For now, at least, AT&T is on its own,” Moffett said.
Moffett says Verizon will also probably soon have to impose data caps on it smart phones to keep its powerful network alive and functioning. And if the imposition of metering on smart phones becomes an industry standard it may prompt cable broadband networks to institute household metering of Internet use, he adds.
“[Verizon has] a better network than AT&T, but they clearly understand that they will have to ration access to it in order to keep it that way,” Moffet said. “And they have signaled six ways to Sunday that they like the idea of metering. Perhaps they feel they can gain some short-term advantage by delaying, and that they can switch later. But that’s a dicey game, since any customers they pick up as a consequence of their unlimited positioning would be more than a little disgruntled if Verizon surprises them with caps of their own. Their window to follow is a narrow one.”
Few Customers Abuse System
Should metered usage become the industry standard, Moffet warns, “metering would also cement the hegemony of the cable broadband network. The notion of substituting wireless for wireline would be dead. And the door would be wide open to cable operators to follow with metered pricing plans of their own.”
Noam Bardin, the CEO of Waze, a social media application for smart phones, says metering might cause people to reconsider which mobile phones to buy. However, the method of instituting metering industry-wide is the most important question in the debate, according to Bardin, and he stresses metering should be instituted under a standard acceptable to the great majority of users who don’t abuse the system.
“The question is what is the right way to punish the 2 percent of data hogs who cause all the problems,” said Bardin. “Comcast had a few cases like this, where they had a doctrine of ‘acceptable use,’ saying that if you exceed the cap they’ll say ‘thank you, but we no longer want you to be a customer’ and they end the account.”
He added, “Acceptable use doctrine will hit this 2 percent and not the average user, but the question becomes what is acceptable use, [which] could be anything [from] 2 gigabytes to 5 gigabytes to 10 gigabytes.”
Incentives for Greater Efficiency
If metering becomes an industry standard, Moffett and Bardin agree it will spark competition between application companies to increase gigabyte efficiency.
“Metering would mean that apps developers would begin to compete on the efficiency of their apps, which, like an EnergyStar rating, would suddenly have to be prominently publicized,” Moffett said.
Bardin notes AT&T, Verizon, and Sprint will have to proceed carefully because users will ultimately not blame the application developer if they are charged more or booted off the network for using a bandwidth-hogging application.
“This will make application developers more efficient, but if the average user goes over his or her limit, I think that he is not going to blame the application developers. I don’t buy this marketing pitch that the application developers are the enemy, because when that ISP meter runs out, the anger is going to be directed at that ISP. It happened in [Beaumont, Texas], and the same thing will happen here,” he said.
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.