AT&T's Wireless Pricing Shift Will Test Behavior

Ace! NewsFlash

AT&T Inc.'s shift toward charging wireless subscribers based on the amount of data they use is expected to be an important test of consumer behavior in the technology industry's fastest-growing arena.

In announcing its decision to stop selling unlimited Internet data plans, AT&T, the No. 2 U.S. wireless carrier by subscribers, said the new policy could lower prices for most users of mobile devices and encourage them to make wider use of mobile Internet services.

But developers of mobile-device software worry that the monthly usage limits in AT&T's new plans could prompt consumers to fret about exceeding their data allotments each time they consider downloading a new game or firing up an application. Such hesitance could dim the growth prospects of the wireless-application market just as it is getting off the ground.

Bart Decrem, CEO of Tapulous, maker of the popular Tap Tap games for Apple Inc.'s iPhone, says that if consumers perceive limits on their data consumption, it "could dampen people's appetite for downloading apps and engaging with them over the cellular network."

Joe Greenstein, CEO of Flixster, which makes a popular movie application for cellphones, says that although he isn't worrying about AT&T's policy at the moment, "we would rather people not have to think of it at all."

One potential benefit of the new limits is that they could also encourage device makers and software developers to embrace engineering that promotes data efficiency, much as the auto industry is pushing fuel efficiency in vehicles.

"It has pretty profound implications," says Kevin Talbot, co-managing partner of the BlackBerry Partners Fund, a $150 million venture-capital fund that invests in wireless applications. "We will see a new paradigm play out around efficiency."

How consumers will react to the change will affect not only their bills, but a key area of growth for wireless carriers, which are betting that revenue from selling data services will rise fast enough to outpace the decline in their revenue from ordinary cellphone calls. Carriers also want the power variable pricing gives them to charge for or discourage demand for their network capacity.

Associated Press

Some developers of apps for devices like the iPhone worry AT&T's pricing shift could discourage downloads.

AT&T views its move in part as a trial of how consumers react to price signals. Instead of being able to pay $30 a month for unlimited data use, new AT&T customers will be given the option of paying $15 a month for up to 200 megabytes or $25 for 2 gigabytes, with added charges if they exceed those ceilings. AT&T says 98% of its smartphone customers consume less than 2 gigabytes a month.

Ralph De la Vega, AT&T's head of wireless operations, says the company doesn't know whether consumers will cut their data use, shift to WiFi networks or just pay up. The new plans give them choices, and he is interested to see how that plays out, he says.

Justin Esgar, who runs Virtua Computers Inc., a consulting firm that advises businesses that use Apple computers and phones, worries that the new pricing system ties customers' costs to measurements they don't really understand.

"No one really knows how much data they're downloading to their phone," he says.

Some mobile-device users say they will limit their consumption of data. Alayne Gyetvai, chief information officer for Tessera Inc., which licenses and delivers miniaturization technologies for components found in electronic devices, says she will have to monitor her employees' usage to ensure they don't go over the 2-gigabyte limit.

The risk for consumers, say some analysts, is that while the thresholds that AT&T has set look high for the moment, the introduction of faster wireless networks and more-advanced devices could make it easier for subscribers to exceed them in the near future.

Stuart Carlaw, an analyst at ABI Research, says AT&T's tiered pricing model will quickly look outdated. "There's only one direction you can go with data usage," Mr. Carlaw says.

Sprint Nextel Corp. recently released the HTC Evo, a new phone that works on its fourth-generation wireless network, and which allows consumers to conduct two-way video chats. New applications like this place heavy demands on wireless networks.

Pressure to conserve bandwidth could help some smartphone manufacturers, like BlackBerry maker Research In Motion Ltd., which has put a premium on efficient use of networks.

A study released by Consumer Reports in February found that consumers using iPhones eat up an average of 273 megabytes of data a month, compared with 54 megabytes for BlackBerry users and 150 megabytes for consumers of other smartphones.

"Consumers will start to ask carriers which handsets are the most efficient," predicts Mr. Talbot of the BlackBerry Partners Fund, whose investors include RIM. "Handset makers will start to push those advantages."

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