Operators must change data pricing structure at some point

Not long ago wireless operators were devising ways to spur consumers to use wireless data. Today, AT&T is talking about ways to curb excessive use.

This growth is due not only to the iPhone but also because AT&T offered flat-rate data pricing and was willing to loosen its grip on iPhone customers, allowing them to purchase data applications directly from third parties in an application store controlled by Apple. AT&T then went on to record high ARPU and low churn from its data access plans.

But vendors and analysts have been warning about a dangerous trend stemming from selling just data access plans: Network traffic growing faster than revenues. It's already happening for some. That talk, of course, has led to a variety of ideas as to how operators can recoup these lost revenues--ranging from dramatically changing the cost metrics in their networks to ratcheting back data usage to usage-based pricing.

AT&T's first step to deal with those 3 percent of smartphone users generating about 40 percent of its data traffic is to study consumer mobile data usage patterns and try to come up with ways to encourage these users to modify their usage. AT&T Mobility's Ralph de la Vega noted that services such as video and audio constantly running around the clock are often driving these high usage problems.

"I think we need to educate the customer. The customer has to understand what represents a megabyte of data," de la Vega noted at last week's UBS Global Media and Communications conference. He said that when AT&T educated landline customers on their landline data usage, the company immediately saw a reduction in usage. "We found out that customers didn't know how they were using data ... and when they found out, they reduced their usage."

Of course, de la Vega generated a barrage of negative comments from the blogosphere. Why would an operator want to discourage broadband usage when data services are the wave of the future? Why can't AT&T just invest more in the network?

Certainly it should invest, and it is. But herein lies the conundrum: Even when operators invest in the network, data traffic continues to grow at an exponential rate. Even as AT&T encourages users to connect over WiFi when available, data is growing on the mobile network. All the while, network costs outweigh revenues because operators can't very well increase data pricing plans. LTE technology won't even solve the problem in the long-term. Data traffic will eventually grow and outpace that infrastructure too.

That trend is going to leave operators with the painful decision of instituting usage-based pricing or tiered data pricing plans at some point. How can they do this when users now have the expectation of unlimited data for one price? And AT&T can't very well do it when competitors, which aren't facing the same capacity crunches, likely won't institute this kind of pricing too.

In that context, educating users isn't as silly as it sounds. I'd wager that AT&T will go as far as encouraging some heavy users to modify their behavior. The opportunity to institute usage-based and tiered pricing will come with a new LTE network since QoS mechanisms make it easier. Most operators are talking about this pricing model because they know they can't turn back once they go the all-you-can eat route. They don't want to become that dumb pipe. The trick for AT&T is managing the network in a relatively positive way for smartphone users until it can get LTE running in a meaningful way. However, it may be Clearwire, Sprint, Comcast and Time Warner that set the paradigm for 4G pricing. --Lynnette


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