AT&T Possible Price Moves May Backfire

Potential efforts to charge more for heavy data usage may alienate customers and stymie innovation and growth in the wireless Web

By Olga Kharif

AT&T giveth and AT&T taketh away. The wireless service provider that has mastered all-you-can-eat monthly service packages for its mobile-phone customers is having second thoughts. Concerned that some customers are consuming more than their share of data over wireless networks, the company plans to offer some subscribers "incentives" to "reduce or modify their usage" of bandwidth, AT&T Mobility CEO Ralph de la Vega said on Dec. 9. Analysts and consumer advocates say the changes may backfire.

De la Vega, speaking at a conference in New York sponsored by investment bank UBS (UBS), didn't specify the company's plans, but said one step will be giving users more information on how much data they've consumed. Analysts speculate AT&T may move to a tiered pricing scheme where subscribers are charged more depending on how much bandwidth they use—say, through downloading videos or sending and receiving big documents. Some carriers in other countries, including Canada and Australia, already use tiered pricing.

Yet in a market where customers have grown accustomed to paying a single fee no matter how much data they consume, a switch by AT&T, the largest U.S. mobile-phone operator, may backfire. Analysts and consumer advocates say the move may curb demand for smartphones and wireless data products, stymie development by programmers who specialize in mobile applications, and push subscribers into the arms of rivals, such as Verizon Wireless, that currently charge flat fees. "This notion that customers must now curb their Internet usage or pay up is not only unfair to consumers, it puts up a roadblock to wireless innovation," says Craig Aaron, senior program director at Free Press, a nonprofit group that advocates for unfettered access to communications.

Blow to Mobile Demand

Demand for mobile data is expected to keep rising, though possibly at a slower pace, as carriers take steps to discourage heavy bandwidth use, says Chetan Sharma, an independent wireless consultant based in Issaquah, Wash. Limits on data usage or higher prices may also slow adoption of smartphones, one of the fastest-growing areas of the wireless industry, analysts say.

AT&T declined to elaborate on de la Vega's comments. Verizon Wireless declined to comment.

Companies that specialize in mobile-Web services and products would also suffer from a drop-off in demand growth for wireless Internet access, investors and analysts speculate. These range from startups such as Ustream, which makes a tool that lets Apple (AAPL) iPhone users orchestrate their own live broadcasts of video captured on the device's camera, to bigger players such as Skype, a provider of Internet-based calling services.

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