How AT&T's Data Limits Affect You

Make no mistake, the data limits AT&T set on smartphone and iPad users on Wednesday are a big deal.

In fact, they could be a huge deal. The new data pricing plans, which take effect on Monday, affect new wireless subscribers and, arguably, all the wireless carriers that compete against AT&T as well as their subscribers.

The announcement even affects the multitude of Internet content providers, including advertisers, which will be forced to re-think whether they are shipping too much superfluous content that data-restricted users might never click on out of fear of exceeding their monthly data limits.

At the grandest level, AT&T's plan to stop offering $30 unlimited data plans to new subscribers could be compared to a warlord arriving in a savage land and laying down basic rules for sharing a limited, vital resource -- something as basic as water or available hunting grounds.

Suddenly, some users will be wondering if the 2GB data cap at $25 a month under the new AT&T plan means they shouldn't use the video chat expected in the next-generation iPhone being announced Monday, play an online game or try a content-rich enterprise application, fearing they could be subject to an overage charge.

The AT&T plan also gives users a choice of 200MB of data for $15 a month, or 2GB for $25 a month. For exceeding the 200 MB limit in the DataPlus plan, an added $15 will be charged for another 200 MB. For exceeding the 2GB limit in the DataPro plan, users would pay $10 a month for every 1GB they use over 2GB. "AT&T is basically saying that data access was never free, but now it is saying access is not unlimited either," said Kevin Burden, an analyst at ABI Research, in an interview.

To sort through some of the impact of AT&T's announcement, here are some questions and reflections:

Will All the Major U.S. Carriers Follow AT&T's Lead?

Verizon Wireless almost certainly will, and Sprint Nextel and T-Mobile USA probably won't. Even so, all the carriers have discussed the issue of capping data use for years, even as they have tried to find ways to add more wireless spectrum for surging data demands from smartphones, such as the iPhone, as well as netbooks and tablets, including Apple's iPad.

Verizon, the nation's largest wireless carrier, said it won't comment on No. 2 carrier AT&T's move or its future plans. However, several analysts said they believe Verizon will set data caps by the time its new LTE network begins to emerge later this year.

"Verizon will follow AT&T pretty quickly," said Jack Gold, an analyst at J. Gold Associates. "My bet is six months. They will see similar bandwidth congestion [that AT&T has experienced with the iPhone and other smartphones] with all the Droid phones they are shipping and the move to an array of tablets and netbooks that get 3G." Phillip Redman, an analyst at Gartner Inc., and Burden agreed on Verizon's potential move to data caps.

Most of the analysts interviewed said Sprint Nextel, the third-largest wireless carrier, will not move to data caps soon, and may not for a long time. "Sprint doesn't have the capacity constraints of either AT&T or Verizon, since they have been losing customers and not saturating their networks," Gold said.

Redman predicted Sprint will not go to data caps because it needs to differentiate itself from other carriers and has been touting the faster WiMax wireless platform as that differentiator.

In fact, Sprint is launching the HTC Evo 4G smartphone on Friday, giving users access to 4G WiMax or 3G service where WiMax is not available. Sprint's press release touts the Evo as giving users "reliable transmission of large amounts of data and real-time collaboration," which would contradict instituting a data cap.

A spokeswoman on Thursday said Sprint is "always evaluating pricing, but we have no changes [related to data limits and pricing] to announce at this time." Sprint's central marketing message is, in fact, based on unlimited usage as indicated with its Everything Data plans, which include unlimited Web, texting and calling with any mobile device in the U.S.

Fourth-largest carrier, T-Mobile USA, also hasn't commented on AT&T's move, but also isn't considered as capacity-strapped as either AT&T or Verizon.

Other carriers could respond by setting up new plans for even less than $15 a month for low data users, Redman said.

What's the Impact on Wireless Data Users at AT&T?

The impact, in dollars that new AT&T subscribers might pay, is somewhat debatable. Some analysts and AT&T argue that nearly all AT&T smartphone users (98%) today use less than 2GB of data a month, and most (65%) use less than 200MB, which would make them eligible for the less-expensive plan.

"Most users will find that with the mix of Wi-Fi and 3G, that on small form factors [like the iPhone], 2GB is plenty of broadband today," Redman said. "What happens in two years may be a different story."

Redman said a smartphone's screen is so small and the resolution so low that it doesn't use nearly as much data as a laptop or tablet, especially those that support high-definition resolution screens. Even a video chat functionality in the expected fourth-generation iPhone wouldn't mean a user would be likely to exceed a 2GB monthly limit.

"It's not yet clear just how much bandwidth video chat will use, as there are ways to pretty aggressively limit bandwidth usage through slow fram rates, heavy compression, etc," Gold said. But video chat will use more bandwidth than text or voice chat, he said.

What About Other Conventional Uses?

AT&T advertised that 2GB is enough data to support sending and receiving 10,000 e-mails without attachments, plus another 1,500 with attachments, as well as view 4,000 Web pages, post 500 photos to social media sites, plus watch 200 minutes of streaming video.

That last item, streaming video, could be the most challenging limit for younger users, given the growing popularity of online TV. Analysts noted that 200 minutes of streaming video is only slightly longer than three episodes of the popular Fox series, Glee.

"AT&T is getting people to think about how they use data with new pricing and overage charges," Burden said, although he agreed that the heaviest data users on the iPhone are a "small percentage."

In fact, some independent data supports AT&T's contention that most users will pay no more, or even less, than they do today. Consumer Reports said Thursday that the average iPhone user should pay the same or less for service under the new data plans. AT&T sells the iPhone exclusively in the U.S.

The average iPhone user consumes 273MB of data per month, according to a Consumer Reports blog from February that relied on independent wireless bill analysis.

That is much more usage than other smartphone owners, but Consumer Reports also found that more than half of iPhone customers use less than 200MB a month, supporting AT&T's claim. With that amount of data, the CR analysis found that the new $15 AT&T plan with 200MB a month would cut data costs in half for the majority of iPhone owners.

Even though Consumer Reports reported that finding, it warned consumers that AT&T could easily raise the introductory rates or adjust the data limits downward. It also noted that the new iPhone OS 4.0 mobile operating system coming this summer, will provide multitasking that would allow wireless consumption of data from multiple apps at one time, further pushing the ceiling on any data limit.

Won't Users Worry about Overage Charges and Severely Limit their Mobile Web Browsing and Video Usage?

The answers are: perhaps and perhaps. How users react to the data caps could depend on how mobile content providers prepare for caps, such as offering higher quality content that's more customized to individual users, possibly with the help of GPS location information.

The implications of data caps are significant for many groups, including the carriers and their customers, but also Web content providers, include advertisers. Today, with no data caps, content providers (which means anybody with a Web site or any site that includes an ad or other third-party content) "can just throw stuff out there," Burden explained.

But what AT&T has set in motion, and that Verizon and others will likely follow, is a system where mobile consumers "will make choices over what they view, and it won't just be everything," he added. "When it comes to downloading data and advertisements, consumers will say, 'I might not need that' or, literally, 'I'm paying for that.' "

As a consequence, content will need to be higher quality or have value for users to call it up. Users might view advertising as an annoyance and an expense, which could shake up the traditional advertising model. Advertisers might need to pay more to content providers to support higher quality content or ship an ad to an individual user based on a retail store he might be standing near using location information, such as Google Maps or other systems. That new dynamic could also prove valuable to the carriers, which could cash in, Burden theorized.

"Data caps might be a way for operators to angle to take a portion of the ad dollars by positioning themselves as the important delivery mechanism," Burden said.

"So the operators might make a play for ad dollars since they can say, 'all our subscribers are going to be watching the meter.' In a sense, it's a lever the wireless carriers have on the advertisers. I believe it's an ulterior motive down the road."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His e-mail address is mhamblen@computerworld.com.

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