Mixed Reception To AT&T's New Data Pricing Scheme

Several readers have sent in followups to Wednesday's news that AT&T was eliminating its unlimited data plan. Glenn Derene at Popular Mechanics defends the new plan, writing, "Imagine, for a moment, if we bought electricity the way we buy data in this country. Every month, you would pay a fixed amount of money (say, $120), and then you would use as much electricity as you wanted, with an incentive to use as much as you could. That brings price stability to the end user, but it's a horrible way to manage electricity load." Others point out that this will likely engender more scrutiny from regulatory agencies and watchdog groups. A Computerworld article says that one way or the other, AT&T's decision is a huge deal for the mobile computing industry, influencing not only how other carriers look at data rates, but how content providers and advertisers will need to start thinking about a data budget if they want consumers to keep visiting their sites. AT&T, responding to criticism, has decided to allow iPad buyers to use the old, unlimited plan as long as they order before June 7, and Gizmodo has raised the question of "rollover bytes."

Comments

Rent

[Scrameustache]

Imagine, for a moment, if we bought real estate the way we buy electricity. We'd have a punch card at the door to record when we go out, and when we go in...

If by that you mean...

[HangingChad]

Mixed Reception To AT&T's New Data Pricing Scheme

That's true provided your definition of "mixed reception" encompasses the pitchfork and torch carrying mob ready to storm AT&T headquarters.

But imagine this...

[gillbates]

Imagine, for a moment, if you bought infrastructure equipment, and sold only the capacity you could actually deliver at any given time? Regardless of whether your equipment is fully utilized or underutilized, you still have to pay the cost of the electricity to power it, and the real estate in which it is housed.

This is why flat pricing models are a good idea. Imagine for a moment if AT&T charged by the byte, and people stopped using all that bandwidth to save money. AT&T's income would decrease, but not their cost of business (hey, they've already bought the equipment, might as well use it...)

If AT&T charges a flat rate, they can predict their income and plan accordingly. However, if they charge by the byte, then they have to deal with fluctuating income from one quarter to the next. Not only this, but there are perhaps a sizable portion of their customers who will instead try to minimize their costs. With a fixed rate plan, they have no option. But with a pay-per-byte plan, users like me could use their services for pennies a month. AT&T is about to come to terms with the fact that most users will opt for using less bandwidth and forking over less money per month. The reason why people pay so much for data plans is because they have to, not because they want to. Give the people the ability to save money, and they will take advantage of it.

These kinds of plans have been tried before, and they always fail. Email is cheap, bandwidth-wise, and movies can be had from Netflix for less than the cost of the bandwidth used by the net.

Stupid comparison

[Grishnakh]

Electricity and other limited resources are NOT like data. The only limitation on an internet connection is bandwidth, which is a rate, rather than an absolute quantity. The comment in the article comparing unlimited data plans to unlimited electricity is just stupid, and shows a complete lack of understanding of basic physics.

If you burn 1000 kilowatt-hours of electricity (which equals 3.6 billion joules of energy), that energy had to come from a specific quantity of oil, coal, natural gas, or some other limited resource. Generally speaking, if you hadn't wasted that power, the power company would still have that much in natural resources left to use. So every unit of energy carries a dollar cost.

Data isn't like that. If the connection is present, it costs no more for the internet provider to transmit at maximum bandwidth versus transmitting nothing at all, for a given period of time. You might as well use it. The only limitation is bandwidth, since the "pipe" is only so big, so if everyone is trying to transmit/receive data at the same time, they're going to be limited as they have to share.

If the ISPs are worried about people hogging bandwidth, there are other ways of dealing with that, such as by limiting their individual bandwidth. For instance, those found to be hogs during peak times can have their bandwidth limited to less than others who are more occasional users. Limiting people to a specific quantity of data is just stupid and greedy. If someone downloads tons of stuff during off-hours, making use of bandwidth that would otherwise go unused, this does not cost the company anything, nor does it inconvenience other customers.

There is absolutely no reason data providers cannot place transparent bandwidth limits on hogs during peak hours so that everyone can get along, without having to add on any extra fees or hard limits, or causing any inconvenience to other customers.

Re:Stupid comparison

[GWBasic]

Data isn't like that. If the connection is present, it costs no more for the internet provider to transmit at maximum bandwidth versus transmitting nothing at all, for a given period of time. You might as well use it. The only limitation is bandwidth, since the "pipe" is only so big, so if everyone is trying to transmit/receive data at the same time, they're going to be limited as they have to share.

You're wrong. Radio spectrum is a finite resource; there's no more untapped frequencies. It follows the same economics of energy, which is constrained by how fast we can suck it out of the ground. Radio spectrum is constrained by how smartly we can divide it up.

If someone downloads tons of stuff during off-hours, making use of bandwidth that would otherwise go unused, this does not cost the company anything, nor does it inconvenience other customers.

Again, there's still more demand then the bandwidth can handle. What happens as soon as a bunch of people decide to batch up their less-time-sensitive stuff and send it at night? Then nighttime will become constrained. We're already seeing bandwidth peaks at night.

Re:Last byte?

[Mordok-DestroyerOfWo]

But how long until the other players decide that AT&T shouldn't be the only ones with their customers over a barrel? We saw it with the increase in text messaging rates. When one company screws their customers in the name of profit, the others will soon follow suit.

The new plan is a really bad idea

[techmuse]

The plan is just a way for AT&T to get rid of its least profitable customers. These are the ones who actually *use* the network capacity that they pay for. Most people are light users. They pay a lot of money but don't actually use much capacity. AT&T loves these people, because it's essentially free money. The ones who actually use the service are not very profitable, because AT&T has to provide capacity for them. (Capacity isn't needed if you don't use the network!) So rather than expanding capacity to match demand, they're making it economically infeasible to *use* the capacity that you pay for.

AT&T claims that most people use less than 2 GB/month. That's great, but that's partly because of the lack of good applications for most smartphones. (iPhone users use much more than half the data on the network.) Imagine if AT&T had imposed a cap based on what most people used in 1993. The web would have no pictures. You couldn't afford them. If they based it on what people used in 1996, the web would have no audio or video. You couldn't afford it. Same with most applications used today, network based software distribution, Skype, and many other things we take for granted. The cap makes higher bandwidth applications unaffordable for most users, and will seriously stifle the development of new technologies for mobile device.

This is a truly bad idea...

Charge for tethering is a complete rip-off now

[Logic Bomb]

The ridiculous part is that they're still charging a fee to enable tethering. That sort of makes sense with an "unlimited" plan. Presumably, the plan price was based on an estimate of how much data you'd use. Since tethering will obviously drive up usage, that assumption is no longer valid. (This highlights the absurdity of so-called "unlimited" plans that aren't really.)

But now that you are paying for actual use, there's no excuse to charge anything for tethering. You've paid for 2 GB (or whatever), and it shouldn't matter how it gets used. If you use more, you pay more.

I'd really like to see a regulatory authority question that charge.

American phone companies charge too much

[francium de neobie]

When I was in Hong Kong, I just had to pay $51 USD per month and they'll give you unlimited 3G data with tethering, tons of voice minutes, wifi access at their hotspots throughout the city, and an legally unlocked iPhone 3GS.

Now I'm in Palo Alto, that barely buys me a voice plan. And even if I give them 2x what I did in Hong Kong, I'm still capped. And AT&T's reception in cities (like San Fran) sucks - yet it's Hong Kong that has more frickin' high rise buildings to block the 3G signals - and in Hong Kong 3G fucking works. I really, REALLY have no idea how any of you guys can try to defend AT&T over their crap service.

Re:I don't want this

[ZosX]

What about the billions the telcoms fleeced us for network improvements? Why would the government even subsidize profitable business? If they cannot afford to upgrade their networks, then something is dramatically wrong. Look at text messages. It costs them NOTHING to send them as they are sent over the control signal, yet they feel a need to charge upwards of .25 for one. This is all about fleecing the consumer and stifling innovation so they can get away with their rick shaw networks for another 5 years while the rest of the world outpaces us. How long did it take for 3g to come into america? Why are our cell phone plans so much more expensive than the european options? If they could get away with charging $100 for a 200 megabyte cap they'd totally try it.

I browsed the web for a few hours last night while listening to pandora via a 3g wireless tether to my G1. It didn't take long to break 100 megs. No multiply that times 30 and you start to see that it wouldn't take long to exceed a 2gig limit. 5gb or so seems fair, and I've almost exceeded that a few times with video and whatnot. I mean I understand that this isn't the same as a wired connection that has oodles of bandwidth available in the local loop. I understand that each cell site takes a dedicated connection and that costs a great deal. What bothers me is this whole bait and switch. A lot of people bought ipads on the premise of unlimited internet. Sure they are grandfathered, but for how long? It was the reason I decided to finally pony up the $100 a month a T-mobile contract costs me with android. If T-mobile went to a 2gig cap, I'd be really considering just paying the early termination fees and going back to the laptop+hotspot. Life wouldn't end necessarily.

To me it seems inevitable that in 5 years even 10gigs would likely not be enough. Especially at the 7-20mpbs the next generation of networks is supposed to start pumping out anytime now outside of new york and boston. Its like giving someone a Lamborghini with only a 5 gallon tank that you can only fill up once a month. I mean, what's the point really? Once android starts taking over the smartphone market with flash enabled those few gigs sure won't last long after you watch some 480p video or listen to some streaming music.

This is a really bad deal for consumers. One would hope that some of the other telcos don't follow suit and competition will hopefully sort things out. I won't hold my breath.

Re:If you want to compare it to electricity....

[nine-times]

Also, do you have to buy a separate electrical plan per each appliance, and then get locked into a 2-year deal with your electricity plan?

Oh, and also electricity is heavily regulated because it's a utility. Are cell phone carriers prepared to be treated that way?

Re:Data Budgets

[Obfuscant]

I think the GP means that developers who already have to struggle to keep flash *off* the .mobi site are now going to have to struggle to minimize the bandwidth consumption of their main site.

This is a bad thing exactly how?

I think if you WANT lots of stuff to download, go for it. I also think that a website that requires 1Mbyte of stuff downloaded just to view it is a waste of bandwidth. Web developers that do things like force you through a huge flash animation just to visit the rest of their site are an abomination. I've lost count of the number of commercial vendors I DO NOT deal with because I couldn't get to their damn text web page. (I have flash deliberately disabled on my browser because it screws the CPU and wastes my time.)

If you can say it in ten words and choose to use a 300k animated GIF instead, you should be shot. If AT&T's actions help eliminate web-bloat, I'm all for it.

Now get off my lawn.

Re:I don't want this

[dgatwood]

Ah, but airlines charge more money the fewer seats are left to discourage people from causing them to have to move to a bigger plane, and they discount the heck out of fares when they don't have enough passengers. The result is that the airlines are now constantly raising fares and whining about how they can barely afford to keep the lights on, all the while begging for government bailouts. If you want telecom to be in the same boat in ten years, this is where it starts.

Also, trying to compare telecom to airlines is a terrible analogy anyway. There's minimal additional cost to a telecom system for additional packets up to the point at which they have to increase infrastructure. With aircraft, the cost to the airline depends on how many people are flying. If zero people are flying, it costs zero dollars because they cancel the flight. If at least one person is flying, they have to pay the base cost of fuel plus an incremental fuel cost proportional to the number of people on the plane, the number of bags, etc. By contrast, with a network, ignoring minor fluctuations in power consumption, the cost of the capacity is almost entirely there even if the capacity is unused.

Finally, as for whether charging for bandwidth would stifle growth, we need to learn from history. When iPhone came out, suddenly AT&T started offering unlimited mobile data at a reasonable price. Traffic from smartphones is now about 1/6th the total Internet traffic. Before that, smartphone traffic was basically inconsequential. Now part of the difference is that iPhone provides a better browsing experience than most or all of the craptastic browsers that came before it, but speaking as somebody who had a previous phone that was capable of doing mobile browsing, I can honestly say that I never even bothered to test the feature to see if it was usable. Why? Because they were metering by the kilobyte and I wasn't about to run up a thousand dollar phone bill. I took one look at the rates and said, "No way."

Now I'll grant that the two-gigabytes-and-then-you-lose-service plan is less of a screw job than AT&T's extortionate per-kilobyte rates from a few years ago, but there's really no question whether higher prices will stifle growth. It historically did stifle growth, and it stifled growth massively.

I'm a light iPhone user. I almost never use it to check mail, and only occasionally use it to browse the web. Even still, I rack up an average of 300 MB per month. 2 GB is not a lot of traffic. It's like loading Slashdot's home page about once every twenty seconds for a month. It's like watching about 36 minutes of high definition YouTube video (if you could actually do that over 3G). Let's put that in hard numbers. Somebody watching nothing but YouTube HD videos all day (assuming a 14 hour day with time out to sleep and eat) would spend a whopping $17,500 in bandwidth fees. Talk about a phone bill that can stifle growth.

Yes, this AT&T scheme is a bad thing. A VERY bad thing.

Re:it had to happen

[KahabutDieDrake]

No, that is not how capitalism works. That's how capitalism fails. When you buy a service the seller should have no stake in how it's used. If they do have a stake in how it's used, then they should be LIABLE for it too. In a really free market, where 2 or 3 holding companies don't own the entire network, there would be no charges for services which are dirt cheap or free to the carrier. Like text messages. Because someone would come along and sell the service at or very near cost.

Instead, we have fees and inflated costs for services, because the network is wholly owned by a handful of companies which see fit to keep a relatively level pricing scheme between them. Tethering fees are only possible because of two things. 1) most consumers are too ignorant to know what they aren't getting. 2) monopoly control of what should be a public resource. That isn't capitalism, it's corpratism.

Re:it had to happen

[laughingcoyote]

The tethering fee is due to the added value of the data going to your computer instead of your phone. It is far mare convenient to access the Internet on your laptop than on your phone so why shouldn't you pay for it? I'm not saying I like it but that's how capitalism works.

Bullshit. Utter bullshit.

If I buy something, I can use it however I like. You can't have it both ways. If you want to give me a limited amount of data, I should be able to do absolutely whatever I want with that data allowance. You're selling me 2 GB per month to use up in any way I see fit. THAT, is how capitalism works-you sell me something, it's mine now, and I do with it whatever in the hell I like without owing you another nickel.

It doesn't matter that there's an "added value". If I buy flour, you get money for the amount of flour you sold me at the price you asked, and that is the end of you having any say or interest in that portion of flour. You don't get to come back later and say "Wow, that's a nice loaf of bread you baked. That added some value to that flour, let's talk about what you owe me now...". The moment you got paid, you no longer should have any control over what you sold me or how I choose to use it.

Don't get me wrong, I'm not a rabid capitalism supporter, either. But capitalism involves a transfer of ownership being a transfer of ownership, period. Government-protected monopolies rent-seeking every penny they can get their greedy little mitts on is not a "free" market in any meaningful sense of the word.

Re:it had to happen

[hedwards]

Actually, that's not the case. The reason why is that all the companies know that charging for text messages is essentially a scam, and all of them know that it's in their best interests to not compete on the price of the text messaging. It's not illegal since they don't have to discuss it with each other, they just all know that it's not in any of their interests to rock the boat too much.

Capitalism is a lot dirtier than people suppose, it will always move to a monopoly of some sort, because that is the most profitable position to be in. Likewise being a part of a de facto cartel is also frequently a desired position as it's easier to maintain and as long as you're careful you can get away with it for a lot longer.

Re:I don't want this

[Kalriath]

Find a business model that works.

Oh, bugger off. I've had it with people insisting that businesses trying to subsidise free content with ads need to "find a business model that works" because at the end of the day, someone needs to fund it. The problem is that these are the typical responses:

* Advertising: "I don't like ads. Find a business model that works".
* Paid content: "I don't want to pay. Find a business model that works".
* Merchandise: "I don't want to pay. Find a business model that works".
* Shutting down: "WTF? I visited that site! Why couldn't they find a business model that works?".

In short, stop spouting "find a business model that works" and offer some fucking suggestions.