Yesterday AT&T Mobility (NYSE:T) bravely stepped into the world of usage-based data pricing with the announcement that it will stop selling unlimited mobile data plans to new customers that buy smartphones and iPads, and instead will offer a choice of two data plans: $15 per month for 200 MB of data or $25 per month for 2 GB of data. Customers who exceed those data limits will be charged more. Existing AT&T smartphone customers will be able to keep their $30 per month unlimited data plan.
Executives from several major carriers have for months hinted at usage-based data pricing. Many of us were shocked when AT&T Mobility President and CEO Ralph de la Vega told analysts at an investor conference in December that about 3 percent of AT&T's smartphone users generate about 40 percent of its data traffic. That statistic exemplified the need for operators like AT&T to educate consumers on their data usage and put some limits on the heavy users likely causing some of the network congestion issues.
I think other operators will eventually switch to usage-based data pricing as their customer bases begin to migrate to smartphones and the data usage on their networks skyrockets. Clearly AT&T, which has experienced an explosion in data usage since it introduced the iPhone to its network in 2007, had the most to gain by moving to this type of pricing model quickly. Although other carriers may not be feeling the same pressure, they are probably carefully watching AT&T's move and they may want to migrate to this type of model now to prevent the type of network congestion issues that AT&T has experienced in the past few years.
Even AT&T's biggest competitor Verizon Wireless (NYSE:VZ) is likely considering this type of move. Just last week at an investor conference in New York, Verizon Wireless CEO Lowell McAdam said he believes there will be a natural evolution toward purchasing megabytes of data on a network that can be used by a group of connected devices.
Clearly there is plenty of room for usage-based pricing innovation. As Mark Lowenstein, managing director of Mobile Ecosystem, pointed out, AT&T did not implement a plan for additional devices. "I'd would like to see more aggressive pricing for additional 'devices,' or 'lines' to be added, such as a $5 discount for each additional device in a family plan or the ability to have multiple devices share a data 'bucket.'"
But usage-based data charging will have some ramifications (both good and bad) for other companies in the wireless ecosystem. Applications developers who can make compelling applications that don't consume a ton of network bandwidth will likely score points with cost-conscious consumers. Likewise, those apps that are heavy on consumption will probably take a hit as consumers realize that their streaming video habits are wreaking havoc on their data usage.
Further, wireless device makers should focus on making their devices more efficient on the network as a way to differentiate themselves from their competitors. Research In Motion (NASDAQ:RIMM) has long touted the network efficiency of its BlackBerry platform. Perhaps it's time for other device makers to take a closer look at RIM's model.
I applaud AT&T for being the first operator to move to a usage-based data pricing model. I hope the company now focuses on educating its consumers about their data consumption so that the switch from unlimited data pricing to usage-based pricing doesn't cause confusion and consternation. --Sue