AT&T made headlines earlier this month when it announced cheaper data plans for the iPhone that dropped the unlimited data option altogether. O2, one the iPhone’s carriers in the UK, did the same thing last week when unveiling its iPhone 4 pricing.
But O2 took one step further than AT&T, publishing a blog post in which CEO Ronan Dunne declared unlimited data to be “a thing of the past.”
“We believe that in the future, mobile data will be every bit as important as the other commodities that we take for granted—water, electricity, TV signals. It will form an important part of the basis for a new digital future, in which all citizens have access to the information and services they need to run their lives,” Dune wrote. “But we also believe that unless we find a way to manage it more effectively, the provision of mobile data will become uneconomic for the world’s operators and risk holding back the digital economy of the future. Our new billing strategy is an important stepping stone to that future.”
Look for more wireless carriers to follow suit with their data plans—at least according to analysts who follow the industry.
“It’s a simple issue of commodity pricing,” said Jack Gold of J. Gold Associates. “Wireless bandwidth is after all a commodity, like airline seats, TV minutes, and even highways.”
Since wireless data has been an easily available commodity with limited demand for some time, Gold says, it was in the carriers’ collective interests to price it low to attract customers. But as smartphones become more prevalent—smartphone shipments from manufacturers grew 57 percent in the first three months of 2010, according to IDC—demand for data is increasing as well.
This situation is quite different from home broadband, where consumers have gotten used to having all-they-can-eat data plans on their home cable modems or DSL. “Wireless is fundamentally different from a bandwidth perspective,” Gold explained. “It is much more limited and far more expensive to improve/increase capacity, if it can even be done given the set limits on frequencies and bandwidth available.”
On the advent of data-gobbling iPhones that multitask and growing Android competiton, one hardly needs to read the carriers’s tea leaves (or try to make a couple of calls on AT&T in a major U.S. city) to see that carriers need to respond to skyrocketing consumer demand for wireless data. “With more congestion, it became clear that the commodity was in high demand, and therefore carriers could limit access by charging for that access,” Gold said. “Once AT&T broke the ice, so to speak, there is no reason for others not to follow.”
Avi Greengart at Current Analysis agrees, and expects Verizon Wireless—AT&T’s largest competitor in the U.S.—to be the first to join AT&T in abandoning “unlimited” data, and soon. “[Verizon] has long said that it intends to move away from unlimited data offerings,” Greengart told Macworld in an e-mail, “and will likely follow suit later this year.” (Indeed, on Thursday, a Verizon executive told Businessweek that the company may introduce tiered, limited data plans this year.)
The new wireless data caps may not simply be a move to capitalize on demand, however. Greengart notes that, thanks to AT&T’s new, lower data plan prices, the base monthly cost of owning an iPhone has dropped from $70 to $55 (excluding an SMS plan). But Ben Bajarin of Creative Strategies points to the benefits to the bigger network picture. Like it or not, “our networks can’t fully support a tremendous amount of concurrent data users,” Bajarin told Macworld. “Perhaps part of this change of pricing may actually make the networks work better due to less people surfing all the time because they are aware of their limit.”
Some carriers that still have room to breath, like Sprint and T-Mobile, may take advantage of moves by AT&T, Verizon, and O2 to limit data usage, according to Gold. “Sprint is not going that route, because its networks are still relatively underutilized. So it sees this as a competitive opportunity—telling people their network data plans are still unlimited.” But once—or if—Sprint begins experiencing the same data demands of its competitors, don’t be surprised if it shows up at the unlimited data funeral with its party hat on.
Unless you are a so-called “data hog,” though, the death of unlimited data plans is not all bad news. Gold touts the same price advantages for consumers under the new plans as AT&T did, and reiterates that data hogs make up “probably only 5 percent to 10 percent of users, [who] will have to limit their use or pay more. The average user might actually save by being able to buy a lower level plan for less.”
Really, wireless data may have finally begun the transition to being priced like most other commodities. Consumers would fly a lot less if everyone had to pay first-class prices for airline seats. They would probably not subscribe to nearly as much cable TV, either, if everyone had to buy the top-tier, all-the-channels-you-can-watch $120 Comcast “Digital Premier” plan.
In the end, Gold, Bajarin, and Greengart seem to agree that consumers will warm up to this brave new world of constrained mobile Internet, even if a vocal minority of data hogs and press complain about the move. Of course, we will anxiously watch how the industry sorts out its data plans and customer demands over the next few years. iOS 4 will allow the iPhone (already a data-hungry device) to join Android—another increasingly popular platform—in supporting multitasking, which means a new army of devices are poised to consume more data than the networks have ever had to serve.
Traditionally, it has been quite difficult for businesses to remove value from a product or service; AT&T sidestepped this challenge by lowering the overall price barrier for a new wave of customers. So if AT&T and O2 have indeed kicked off a trend, and if a new group of consumers are indeed wooed to smartphones, there is only one way for data plan allowances (and premium prices) to go: back up.