Entner: The three pillars of AT&T's new data pricing plans

Roger Entner is senior vice president and head of research and insights for the Telecom Practice of NielsenAT&T announced an overhaul of its data pricing approach. Effective June 7, 2010, the day of Steve Job's opening remarks at Apple's World Wide Developer Conference, all AT&T smartphone customers have the choice between a new 200 MB per month plan called DataPlus for $15 per month, a 2 GB per month plan called DataPlus for $25 per month, or for existing AT&T customers to stay with their $30 per month unlimited data plan. All of these plans simply bill the same amount when the data amount is exceeded. In addition, the long-promised tethering option becomes available for $20 extra per month for the 2 GB plan customers using that data bucket.  This pricing plan move rests on three pillars:

1.       Realign the data business model
2.       Price reduction drives demand
3.       Address FCC concerns

1. The wireless data business model was and still is for some operators fundamentally broken. Unlimited usage and therefore cost combined with fixed revenues from unlimited plans. 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. Unlimited pricing is an endgame move when a significant amount of terminal usage and cost figures are available or when you have significant amount of free capacity. Instead the mobile carriers used it as their opening gambit. 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.

2. From all we can tell a new generation of iPhones is upon us. AT&T has benefitted handsomely from the device. By lowering the data component of smart phone plans, among them the iPhone, they are stimulating demand, just like the shift from unsubsidized iPhone pricing to subsidized iPhone pricing drove adoption. AT&T's iPhone customers spend roughly $86 per month on their wireless bill, by lowering this bill to about $70 per month new customer segments are being opened up. Furthermore, if another carrier carries the iPhone, they will have to follow suite with the price cut reducing their expected profit.

3. The FCC has put an unprecedented focus on the wireless industry. Most recently, it voiced its concerns regarding bill overages. 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. Furthermore, when the data bucket is exceeded the overage is billed at the same or lower increment as the regular monthly subscription. The DataPro plan adds on at a lower rate with every 1 GB being added on for $10. This very transparent pricing move that surely will address some of the other points the FCC had raised.

As data adoption and consumption increases at all mobile operators, it is only a question of time until AT&T approach to data pricing will be adopted by others. Rather than being seen as an uncompetitive move it should be seen as the realization that a operators are under the same physical and fiscal constraints and have to respond to it in largely the same fashion.

Roger Entner is senior vice president and head of research and insights for the Telecom Practice of Nielsen. For ongoing insights from Nielsen on this and other topics, visit NielsenWire.com.