AT&T will use new device formats to introduce usage-based pricing

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AT&T will use new device formats to introduce usage-based pricing

CEO outlines how products like iPad will cushion the shock of the end of unlimited data

By CAROLINE GABRIEL

Published: 3 March, 2010

It is now only a matter of time before users have to accept the death of all-you-can-eat deals, and AT&T and Verizon Wireless are both readying usage-based pricing schemes for this year. Both will try to pull off the difficult marketing trick of presenting these as premium quality services for high end users, rather than price rises, which will depend on associating the fees with new device formats like tablets, or networks like LTE. AT&T CEO Randall Stephenson was focusing on the iPad and other emerging data-driven gadgets as he outlined usage-based plans during an investor conference run by Morgan Stanley this week.

Stephenson did not go into details of how the new plans would work, but reiterated the increasingly common carrier theme - that tariffs must make those who consume the most network resources bear more of the costs, especially with operators investing huge sums in additional capacity and new networks. "We will progress more toward variable pricing," Stephenson told the event. "Heavier consumers will pay more than lower consumers."

Some carriers believe the bid to get consumers to pay significantly more for mobile data is ill-fated. Only a small minority, whose needs are critical, will accept the charges, they claim, and the real challenge is to tap into revenue streams that do not involve charging more to consumers - advertising-supported services; embedded wireless for consumer or industrial applications, where the carrier takes a fee from a device maker or apps provider; fees to content owners for optimized delivery of their wares. This was a topic recently addressed by Sprint Nextel CEO Dan Hesse, focusing on the example of mobile health.

But AT&T is more wary of such models, which remove the carrier's brand and control from the equation. It favors new devices for increasing the number of wireless deals - targeting penetration of three wireless subscriptions or more per head, whether invisible or not - and has an advanced program in this area. But as its iPad deal with Apple showed, it is still prepared to offer subsidies in order to retain the customer lock-in and relationship, rather than going for the full open access retail model.

Stephenson said AT&T is already exploring new pricing models for emerging devices such as e-readers, tablets and other non-phone products, which will come without traditional monthly service plans, and rely on event-based pricing and even prepaid models. Last year, AT&T's head of the Consumer and Mobility division, Ralph de la Vega, said the carrier had seen 5,000% growth in data traffic over three years, but that nearly half of that traffic was consumed by just 3% of its smartphone users. Stephenson added that 50% of all mobile broadband traffic now travels on AT&T's 3G network, but that demand for data is still outpacing the expensive capacity upgrades the firm is making. In high usage markets like New York, the deployment of a second HSPA carrier was only sufficient to meet capacity demand for one year, and now AT&T is adding a third and even fourth HSPA carrier in many such markets.

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