Interviews with Digital Media Thought Leaders

AT&T’s Seeds of Self Destruction

Podcast Video | Posted by Phil Leigh on June 10, 2010

To download, instead of stream, this video click here.

AT&T Wireless’ decision to replace iPhone and iPad $30 monthly unlimited Internet access with metered pricing is significant for two reasons. First, consumers will learn that it is much more restrictive, or costly, than they want. Second, it will stimulate the development of competitive lower cost municipal-mesh-WiFi-networks or alternate technologies which consumers will eventually prefer. Consequently, AT&T has planted the seeds of self-destruction.

AT&T claims that most subscribers will save money under the new plan. While presumably valid when based upon historical usage, there’s not a shadow of doubt that the projected future usage patterns for all-you-can-eat pricing were going to be much more data intensive for two reasons. One is that iPhone patterns were already trending that way. For example, it was recently reported that iPhone data traffic was bigger than voice traffic. A second reason is that iPad Internet usage is expected to be even more intensive than that of the iPhone particularly considering the new product’s enthusiastic market reception.

For new subscribers, AT&T will replace the $30 monthly unlimited tariff with two monthly options. One is a $15 fee for 0.2 Gigabytes while the second is $25 for 2.0 Gigabytes. Each partial Gigabyte above the 2.0 threshold costs users an additional $10. AT&T notes that 98% of us so far use less than 2.0 Gigabytes a month.

Even a well know early adopter and power-using geek like David Pogue of The New York Times discovered he almost never uses more than the 0.2 Gigabytes a month of the lower option. But he also knows that AT&T is not altruistic. So he contacted the company for an explanation. He was told that AT&T wants to encourage subscribers who do not yet have a smartphone to upgrade and get one.

Perhaps Pogue is correct. But in my experience regulated businesses with strong lobbying organizations are about as trustworthy, and dangerous, as a teased Mexican scorpion. The advent of the iPad will radically change mobile Digital Media consumption. Already one popular example is an application permitting users to watch ABC television shows on the unit. Furthermore, given an adapter cable, the iPad could be connected to a TV screen thereby enabling Internet videos to be watched on television. For example, users could download iTunes movie rentals for $2 - $3 each and get any number of free video podcasts including network broadcast news – and Inside Digital Media.

Significantly, on average iTunes rented movie files are about one Gigabyte. Thus users downloading one per week over AT&T’s network will get a $45 monthly bill, for data alone. And that does not include any other Web activity such as YouTube or other video streams, or even email. Presumably, the data charges can be reduced by using WiFi networks whenever possible. This could become AT&T’s Achilles Heel.

In short, metered data pricing could resurrect a concept that was ahead-of-its time about five years ago. Back then there was much discussion about the promise of free municipal WiFi networks. But operators discovered that they could not generate enough advertising to pay for the costs. Furthermore, mobility was hampered by poor hand-off performance as users migrated from one wireless LAN to another.

There are three changes since then. First, costs are lower. Second, mesh networks greatly improved hand-off performance. Third, location awareness for hardware and applications such as FourSquare enhance the economic feasibility of the advertising model.

Presumably, AT&T expects other wireless carriers to follow their lead. If so, metered pricing provides a fourth major change that could lead to widespread mesh municipal WiFi network adoption. Specifically, it gives users a powerful economic incentive to avoid cellular networks.

An efficient municipal WiFi system would permit users to move about freely within urban areas while constantly retaining a faster-than-cellular wireless Internet connection. A combination of location awareness and behavioral targeting of ads and promotions, such as rapidly-expiring discount coupons, could be sufficiently effective to financially support the entire network. Store owners would pay for the Access Points in order to attract customers by presenting targeted ads and coupons to iPhone users when they are in the neighborhood and ready to buy.