by Tom Kaneshige

Is Tiered Pricing in iPhone’s Future?

Oct 13, 2009
MobileSmall and Medium Business

Don't blame AT&T for shoddy network service. The problem is growing usage.

The iPhone has over-taxed AT&T’s network and tarnished the wireless carrier’s image probably beyond repair. But is it fair to blame AT&T? As much as we want to point the finger at AT&T, the truth is that it may soon be impossible for any wireless carrier to support an all-you-can-eat data plan.

Many readers have cursed AT&T for shoddy network coverage (or no coverage at all), iron-fisted pricing, and arrogant customer service. Indeed, AT&T was late to support MMS on the iPhone, and is still late with tethering. “For tethering, we need to do some additional fine tuning to our systems and networks,” AT&T told the Wall Street Journal.

At the heart of iPhone users’ discontent is the AT&T network. On Market Street in San Francisco, for instance, downloading content over the 3G data network happens at a snail’s pace. That’s because the network capacity is at its limit.

Roger Entner, head of telecom research for Nielsen, told USA Today that the typical smartphone customer consumes about 40 to 80 MBs of wireless capacity a month, whereas the typical iPhone customer uses 400 MB a month. Moreover, the iPhone foreshadows the growing importance of smartphones as primary computing devices.

Last week, Slate Magazine’s Farhad Manjoo made a compelling case for AT&T to abandon its $30-a-month, all-you-can-eat data plan for a tiered pricing scheme based on usage. He argues that this will make people more mindful about downloading content and thus relieve the pressure currently put on AT&T’s network. Manjoo’s idea: $10 a month for each 100 MB you upload or download on your phone with a cap of $40 for 400 MB or more.

Tiered pricing for data downloads is a controversial issue. Broadband carriers have imposed “soft caps” in the UK. In the U.S., some carriers have also started imposing caps that customers have found out about only when they exceeded them in their inaccurately labeled “unlimited” plans.

In the iPhone space, tiered-pricing will no doubt lead to greater AT&T bashing. Manjoo’s proposed plan also probably won’t do much to alleviate the pressure in the near term. If $40 is the most you’ll pay instead of the current $30, iPhone users won’t be monitoring their usage. They’ll just think AT&T is on a cash grab, bumping up the data plan to $40.

AT&T is in a difficult spot right now. If it opens up its data network to tethering, usage will spike and the network will be even more burdened. Yet the longer it doesn’t support tethering, the more iPhone owners will cry foul.

But Manjoo is right that some form of tiered pricing will be needed to stem the all-you-can-eat consumer mindset when it comes to Internet data downloads. If U.S. broadband carriers, which face a similar problem, are any indication about the future of the mobile Internet, expect things like usage caps and overage charges to make their way to the iPhone and smartphones.

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