Uncommon Wisdom

Dec 11 2009   3:56PM GMT

AT&T’s iPhone traffic jam and the prospect of a usage cap solution

Tom Nolle Tom Nolle Profile: Tom Nolle

The old 80/20 rule is now the 40/3 rule, according to AT&T.

Everyone knows that smartphone users generate between five-to-seven times more traffic than other wireless users, but AT&T says that 3% of iPhone users consume 40% of its network bandwidth. This shows the situation that all-you-can-eat pricing can get you into.

AT&T doesn’t plan to go there, according to its statements to the media. The company says it’s “inevitable” that heavy users at least pay for their usage. The decision to provide no-cap iPhone data use is out of sync with the rest of the world, where it’s routine to have data plans with specific cap-and-cover-charge policies. In fact, our model says that usage-free pricing will always increase over-the-top (OTT) competition and reduce return on investment (ROI), no matter what technology is used and no matter what services the telcos try to introduce in addition to their basic broadband.

We agree that heavy users have to pay for their usage, but we also think AT&T clearly must have known what would happen here and accepted the risk in exchange for the marketing coup it scored with the iPhone. That means regulators may have to consider whether carriers initiate pricing plans for competitive reasons with full intentions of later claiming overuse of the network and using that to justify usage caps, price increases, etc. Since most wireline network operators will move to usage-price plans (likely starting with high caps for heavy users only), this whole issue may provide an entry point for usage pricing to creep into broadband. None of this can happen quickly, though, so AT&T is also planning to upgrade its wireless services in San Francisco and New York, where problems with performance have been most severe.

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