AT&T kills unlimited data pricing, supports iPhone tethering

AT&T Mobility (NYSE:T) this morning made the nation's first definitive step toward tiered data pricing by instituting usage limits on what were previously unlimited smartphone data plans. Executives from the nation's largest carriers have long discussed a move toward tiered, bucketed data pricing scenarios for smartphones, but AT&T is the first major U.S. carrier to implement the changes.

Perhaps not surprisingly, the changes will go into effect June 7--the same day Apple (NASDAQ:AAPL) CEO Steve Jobs is widely expected to unveil the company's next iPhone.

Here's how AT&T's new plans break down:

  • DataPlus: Provides 200 MB of data for $15 per month. If customers exceed 200 MB, they can purchase an additional 200 MB for $15. AT&T said 65 percent of its smartphone customers use less than 200 MB of data per month on average.
  • DataPro: Provides 2 GB of data for $25 per month. If customers exceed 2 GB, they can purchase an additional 1 GB of data for $10. AT&T said 98 percent of its smartphone customers use less than 2 GB of data a month on average.
  • Tethering: Smartphone customers--including iPhone customers--with the DataPro plan will have the option to add tethering for an additional $20 per month. Tethering for iPhones will be available when Apple releases iPhone OS 4 this summer, AT&T said.

The plans stand as a stark refutation of AT&T's previous pricing--which were in line with much of the rest of the domestic and international wireless industry--offering unlimited data access for a flat $30 per month. That the carrier has reversed course likely is a reflection of the dramatic increases in data traffic on AT&T's network, primarily generated by iPhone users. AT&T's new data plans serve the dual purpose of preventing excessive use while rewarding light data users with cheaper prices.

"While the convenience, simplicity and peace of mind that comes with an unlimited plan helps to drive adoption and reduces customer care costs, it is also unsustainable," wrote analyst Roger Entner of The Nielsen Company. "It certainly has driven adoption through predictable pricing, but with a long-term downside risk to the overall business model and the financial viability of the entire industry. ... By lowering the data component of smartphone plans, among them the iPhone, they [AT&T] are stimulating demand, just like the shift from unsubsidized iPhone pricing to subsidized iPhone pricing drove adoption."

Concludes industry analyst Jeff Kagan: "This plan seems to make sense. It seems to address the problems and decrease costs for the vast majority of AT&T customers at the same time. This solution seems a fair way to solve the problem."

AT&T executives have been hinting at usage-based pricing for months now. "For the industry, we'll progressively move towards more of what I call variable pricing so the heavy (use) consumers will pay more than the lower consumers," AT&T CEO Randall Stephenson said in March. Executives from AT&T rival Verizon Wireless (NYSE:VZ) also have made similar comments, though Verizon's Lowell McAdam recently indicated such changes would coincide with the launch of Verizon's LTE network later this year.

AT&T said its new data plans include unlimited access at no additional charge to the carrier's more than 20,000 WiFi hotspots--likely a further effort to ease congestion on its cellular network.

Interestingly, AT&T said it will also introduce new monitoring and management functions for subscribers to track of their data use. The carrier said that when customers begin to approach their monthly usage limit, it will send three text notifications--after they reach 65 percent, 90 percent and 100 percent of the threshold. Further, customers with iPhones and other select devices can use the free AT&T myWireless application to check data usage. Other customers will be able to dial a number to check their data use. Finally, AT&T said it will offer an online data calculator to help customers to estimate their mobile data usage.

"The FCC has put an unprecedented focus on the wireless industry. Most recently, it voiced its concerns regarding bill overages," Entner noted. "The new AT&T data plans offer ample notifications to customers as they approach their data bucket quota, something the FCC pointed out as lacking."

So how will the changes affect AT&T from a financial standpoint?

"AT&T's introduction of usage-based data rate plans today represents incremental pricing pressure for integrated devices/smartphones which could increase AT&T's market share and further accelerate the migration of customers to higher ARPU integrated devices/smartphones from feature phones," wrote Walter Piecyk, an analyst from BTIG Research. "So while ARPUs within device category continue to decline at a rapid rate, the mix shift to higher ARPU integrated devices/smartphones will continue to deliver stable reported ARPU and reinforce the illusion that there is price stability in the wireless industry in the United States." 

AT&T's changes also affect Apple's iPad users. For new iPad customers, the $25 per month 2 GB plan will replace the existing $29.99 unlimited plan. iPad customers will continue to pre-pay for their wireless data plan and no contract is required. Existing iPad customers who have the $29.99 per month unlimited plan can keep that plan or switch to the new $25 per month plan with 2 GB of data.

However, AT&T's changes do not affect its data access plans for laptops, according to Engadget, though an AT&T executive hinted that the changes lay a "framework" for data pricing for the future. AT&T charges $60 per month for 5 GB of laptop data access.

For more:
- see this AT&T release
- see this Engadget post
- see this Reuters article
- see this BTIG Research post (sub. req.)

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