Why iPhone Broadband Caps Aren't Actually A 'Good Deal'

from the trends,-people,-trends dept

There was a lot of attention paid recently to a study from Nielsen concerning how much data smartphone users consume. One of the things that some pulled from this report was the idea that AT&T’s new iPhone usage caps were somehow a “good deal” for consumers, since many appeared to use less than AT&T’s first tier cap. That’s because of the following statement from Nielsen, which certainly implies that:

Usage-based pricing may be more fair. The top 6 percent of smart phone users are consuming half of all data. The vast majority of customers, 99 percent according to the 60,000 phone bills that Nielsen collects and analyzes every month as part of their Customer Value Metrics product, are better off with a pricing scheme like AT&T’s new data pricing model than under flat-rate pricing where they are paying for much more than they ever use.

Of course, the reality is a bit more complicated. Thankfully, Broadband Reports explains why these claims ignore important trends and other factors:

While many people are applauding AT&T’s new data pricing plans as money savers for light users today — they’re not looking at tomorrow’s big picture. One, Nielsen ignores the fact that carriers are now making data plans mandatory for smartphone users who previously only used Wi-Fi. That’s not “more fair,” nor does it save money. Nielsen takes the stance that light users somehow need to be “educated” into consuming more data — yet many of those users simply prefer to use their device’s Wi-Fi functionality alone. That’s no longer possible.

Two, the average user already consumes 298MB of data — while AT&T’s base cap is 200 MB. That cap’s set just low enough to push today’s average user to the higher, $25 a month tier (plus overages, ETFs, an endless assortment of fees). That average is going to quickly skyrocket and the heavy user of today will become the average user of tomorrow — yet instead of having the option of a simple, unlimited data tier at a fair price — they’ll face heavy and often confusing overages just as smartphones begin seeing interesting video service integration (Netflix, Hulu). That’s not about saving money, it’s about making money.

Again, incumbent wireless companies are not in the business of making less money, and this new media meme that a shift to low caps and high overages is about saving consumers money, or fairness, or helping minorities — is simply absurd. If telecom analysts want to analyze — they should be noting that carriers and investors see the death of SMS and voice minutes heading their direction — and are changing pricing models to compensate and cash in on an explosion in wireless video (or streaming wireless audio) use. But the suggestion that this shift is driven by altruism is bizarre and disingenuous.

There’s also the fact that, with the new plans, if you want to use tethering, it’ll run you an extra $20/month — not to mention that tethering will increase data usage. It also ignores the mental transaction costs when you know you have a cap and potential overages that discourages usage, just as more apps are coming online to encourage usage. The really damning part, of course, is just the basic trend that data usage is increasing and that’s not going to slow down any time soon. AT&T smartly set its caps so that it could get analysts to make these kinds of claims, ignoring that a couple years from the average data will be much higher and more and more people will be pushed to higher, significantly more expensive options.

What’s kind of amazing here is how no one seems to look back at the consumer internet access costs for comparison. In the early days, when many people had AOL, there were caps and metered billing. And some people used it, certainly, but it was nothing compared to what happened when AOL finally dropped its caps and suddenly people could really embrace and use the internet without worrying about hitting their usage cap. Unlimited internet access is what helped drive internet usage, making it such a powerful and useful platform. Mobile operators seem to want to go in the other direction and are working hard to try to limit how useful many people find their phones, due to limiting data plans. That doesn’t seem all that compelling or “fair.”

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Comments on “Why iPhone Broadband Caps Aren't Actually A 'Good Deal'”

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fairuse (profile) says:

Caps are [not] for kids

I use T-Mobile so I can safely say their model is a little different – the
family plan dog pile. Instead of caps the Data Plan (today) is both
unlimited and middle priced. But it is per phone and as far as I recall
mandatory. Looking at a bill it looks like a cable bill. The $35 data plan is
reasonable for now. But what if 5 phones (mom,dad,3 kids) are type
android/blackberry/winmobile? Pile on!

From My Account on G1:
FamilyTime Basic 49.99 (50)
additional lines 9.99 (10)
php bundle 5.79
G1 plus Service
(data) 34.99 (35)
total 100.79 (round numbers in parens)

note: 3 lines 3 phones (blackberry, g1, dumb phone) = average bill 140.00

Wonder if T-Mob customer base will grow at the expense of AT&T? They
live for ‘stealing’ each others customers so T-Mob should keep an
unlimited plan with price low. Well, I don’t have a crystal ball but caps are
what will drive people out.

Common Sense says:

Re: Caps are [not] for kids

I know one customer that Verizon is about to lose to T-Mobile as soon as my contract is up.

I have to use my device for work email, exchange activeSync for my Android device, but it used to be blackberry. I needed unlimited data AND email plan for the blackberry, and when I switched, the Droid Eris that I got from a fried wasn’t compatible with that plan, so I had to change it to a DIFFERENT(?) unlimited data plan?… THEN when I set up the exchange active sync on it, I got a message that I would be billed accordingly for my email usage, which puts me with the exact same plan I had to switch AWAY from to activate the damn phone!!! That alone irritated me enough to leave, but having heard that T-Mobile give you unlimited talk, text, AND data for a significantly lower price than 450 minutes with Verizon, I’m counting down the days until my contract ends.

Anonymous Coward says:

Re: Re:

If you are on ATT and have a Microcell at your house because you ave crappy coverage, not only do you get to pay for the hardware, plus $10-$20 a month to hook it into your exisiting internet connection, all of your 3g usage at home using the Microcell gets counted against your data caps! SUCH a deal!!!

Nick Coghlan (profile) says:

Overage charges vs speed throttling

Our fixed line providers never got rid of the quotas here in Australia, but most of them have eliminated any overage charges. They throttle the speed of the link instead.

Speed throttling moves the practice of having quotas firmly into legitimate network management territory rather than being thinly veiled profit gouging. Go over quota for the month and you’re putting up with a lower quality connection for the rest of the month, but that’s a lot better than getting a ridiculous bill in the mail.

I also perceive these download quotas as more honestly accounting for the oversubscription of uplink bandwidth that all ISPs practice rather than spruiking “unlimited” quotas when everyone knows no ISP actually runs their network that way.

Anonymous Coward says:

For the moment, it seems as though Sprint has the best package out there. $70 gets you unlimited data, unlimited mobile to mobile calls (and that’s ANY mobile, not just Sprint mobile) and 450 minutes, and I have to pay an extra $10 because I have the Evo. I don’t think anyone else has that much for the price. Hopefully they won’t cap that as AT&T did.

Delta5 (profile) says:

It's all about the market.

AT&T can do whatever they want with the data plans. They can tier it, restrict it, free it, eliminate it, whatever. Oh sure, the techie-blogosphere will be full of angst over it. But in the end, it’s a business decision by AT&T.

If AT&T becomes too restrictive, people can exercise their right as a consumer, and simply choose not to do business with AT&T. If you have an unlimited data plan now, AT&T lets you keep it until you re-up your contract. At that point, you have the choice to exercise your right to NOT sign a new contract. It’s really quite simple. If you don’t like AT&T’s prices or policies, then don’t buy an AT&T phone. Period. No one is forcing anyone to buy that shiny new iPhone. Judging from the continuing supply shortages, the general public doesn’t care about a few people’s antenna gripes. The issue is being completely overblown by the technology media.

bentsn (profile) says:

Tiered pricing is fair!

I generally agree with your posts. However, on this topic, you are wrong. According to one recent report 6% of smartphone users are responsible for 50% of the data usage.
If I were a heavy user, I would clearly prefer an unlimited plan, but on the other hand if I were a light user, I would prefer a cheaper plan. From a fairness point of view, data plans for with a base data usage charge and with extra data usage charged at no more than the base data usage rate make the most sense.

Mike Masnick (profile) says:

Re: Tiered pricing is fair!

According to one recent report 6% of smartphone users are responsible for 50% of the data usage.

This post is about that report. You need to look more closely at the data. Looking only at averages can mislead you greatly.

If I were a heavy user, I would clearly prefer an unlimited plan, but on the other hand if I were a light user, I would prefer a cheaper plan.

Point is, it’s NOT actually cheaper. Most people will end up spending more.

From a fairness point of view, data plans for with a base data usage charge and with extra data usage charged at no more than the base data usage rate make the most sense

Not really. The costs to users of having a cap include mental transaction costs which decrease usage and innovation and make the connectivity and devices less valuable. I would argue that value destruction is more costly than being able to support flat rate pricing.

Danny says:

Just you wait...

A few years from now AT&T will suddenly start offering “brand new” unlimited data plans at outrageous prices. By outrageous I mean you’ll be lucky if its less that $100/per month/per line with a bunch of “fees” attached to “help pay for” all that data.

As others have said this is nothing but a plot to make more money of smartphone users.

Mike42 (profile) says:


You guys forget the real fun. As Nick Coghlan observed, throttling is the proper mechanism to curb massive usage, or at least that should be an option. As a parent of a teen-ager, I can tell you that a teen will happily blow past any tier they’re on, because they don’t have to pay for it. My teen blew past minute caps and text caps without batting an eye. We finally just took the phone away, but not before he had cost us nearly $1,000 in overages.
Now, you’d think that Verizon would have a mechanism available to just stop calls and texts after the maximum is reached. That is what any responsible company would do, but not what a profit-gouging company with minimal competition does.
Consumers need an open market and real competition, not the near-monopoly we have today.

Big Al says:

Re: Kids...

I must admit we had this problem briefly. It was simply cured by removing the contract SIm and replacing it with a pre-paid from the same Telco.
That way we could enforce:
1) You have x dollars on your phone per month. If you exceed that then you can receive calls/texts but not send.
2) If you want more, get a part-time job and earn your own money to pay for it.
It was amazing how quickly the inane crap evaporated when they had a limit or had to use their own hard-earned cash (McDonalds, stacking supermarket shelves).
This is Australia, YMMV.

Anonymous Coward says:

“the average user already consumes 298MB of data — while AT&T’s base cap is 200 MB.” – yet, it is a very small number of people who use a large amount of data. basic bell curve stuff, throw out the very high numbers and the very low numbers, and you will see where the average user really is. i dont have access to the numbers, but i suspect the average user doesnt hit 200meg.

remember, average user, not average over users. take 1000 users, and look at their actual usage, not the average over the group.

Anonymous Coward says:

Re: Re:

I think you mean the “median” user will be under $200, with any typical bell curve, the average is skewed significantly toward the “tail”, which is the high data users. Often people use “average” when they really mean “median” which can get quite confusing.

If mike really means “average” and not “median”, then this would be true, but I have a feeling the average user mentioned is really the median user that is taking up 298mb/month.

ObviousJoe says:

Finally an article that actually portrays the reality behind the tiered data plans. All the saving money for users talk is so short sighted. Its like no one picked on the fact that even if the the time spent consuming media like youtube videos, music remains the same, the quality of the content is increasing resulting in more bytes downloaded. What consumers really need to be educated on is the fact that telecom likes to repackage features as subscription services. Tethering for smartphones is like DVR for TV, renting features of hardware and software you already bought.

Danny says:

Re: Re:

” All the saving money for users talk is so short sighted.”

Not just short sighted but deceptive. If they are so concerned about the customers who don’t use a lot of data why not just add tiered billing options instead of replacing unlimited plans altogether? That way if you use a lot you go with unlimited or if you only use a little you get a tiered plan. And you can even switch back and forth if need be. Not that hard now is it.

Anonymous Coward says:

And we all know that the electrical network really took off after we got rid of kWh restrictions, and allowed customers to pay one price for unlimited usage.

And the water/pipe system really took off after we allowed people to pay one price for unlimited water usage.

Hopefully my sarcasm makes its point. Paying per unit of usage of utilities is not unreasonable or unfair.

That said, the tethering charge is ridiculous.

Anonymous Coward says:

Re: Re:

If I use twice the electricity I used last month there is more coal being burnt. If i use twice the water I used last month there is more water running through the treatment plant, more chemicals being used and more pumping going on. If I use twice the data I used last month??????

Yes the network may be overloaded but much of that lays at the providers feet for not reinvesting into their infrastructure.

Jay says:

Re: Re:

In this case, you’re comparing public utilties witha limited supply (supply and demand, which is why cost per kw/h fluctuates), to data, which doesn’t have a supply, so much as a limit as to what can be supplied at a given moment.

Usage caps should be imposed in two ways; to limit use on a network that is oversaturated with subscribers, and; to throttle users that go over their limit, and when the network is oversaturated in order to curb their use. When there isn’t an oversaturation anymore, there should be no caps.

Yes yes, if the world was down to a finite number of ones and zeroes, I’d be all for usage based billing 🙂

RD says:

“And we all know that the electrical network really took off after we got rid of kWh restrictions, and allowed customers to pay one price for unlimited usage.

And the water/pipe system really took off after we allowed people to pay one price for unlimited water usage.”

Aaaaand the Retard Brigade comes storming out in the 4th quarter with the tried and true “scarce, physical resources are the SAME as infinite data!” comparisons.

You seriously need a refresher on the difference between these two ideas. Data is not water, or electricity, or a car (thats to head off the next round of idiotic comparisons that will inevitably follow.)

Anonymous Coward says:

Blah blah blah, we all heard that… business decision… they are in for making money… don’t use them if you don’t like them… etc.

What’s should be pointed out, however, is that only a few people realized the chilling effects it has on mobile internet evolution. Just as more and more mobile applications are coming online, this move will discourage people from trying, using and improving new technologies.

Anonymous Coward says:

It is getting to the point where buying a smartphone and leaving off the voice portion is a viable option.

I can see a large segment of the population where voice is no longer a priority, data / voip can be had through wifi or wimax, and they are willing to give up on 3g. They can supplement their phone needs with a gophone when needed. In other words, almost 100% freedom from big telco, finally.

This is exactly what I will do next round. I rarely use my phone anymore, but I use more and more data.

Winterman says:

Read the Article Closer

Caps are fine if they are accurate. If they are too small then customers will pay more for less service. This article says that the caps are too small and the customer will have to pay for extras like tethering, mandatory data plans, etc. Customers do not like variable pricing or being nickel and dimed. If I where Apple I would place a cap that 90% of the customer will never reach, charge one fee for all, voice, data, tethering, and be done with it. Of course, continuous monitoring of usage, costs, and pricing will need to be done.

lens42 (profile) says:

A truly fair plan would be...

a simple $10 per GB. No trying to figure your usage in advance. No free ride for movie downloads. Nice and simple, but of course too complex for the great minds at the wireless carriers. The electric company doesn’t make me figure my power usage in advance. I don’t understand why AT&T can’t see how much people hate having to predict the future.

Niall (profile) says:

Going backwards...

Regardless of anything else, this is a massive step backwards. As has been pointed out, the internet once cost active money to use. We Brits could only envy the US dial-up modems with free local calls, so that you could stay on the internet 24/7 and we regularly ran up multi-hundred pound bills.

Eventually, all the data companies wised up to the fact that if they offered flat-fee, affordable internet (broadband) then not only would a lot more people use the service (which they do) but that a whole load of other internet-based services would benefit (and who was likely to be pressurising the cable and telephone companies to provide that cheap data pipe?).

Similarly, on the mobile internet, we had crap, expensive WAP and limited internet until people started offering decent plans (albeit often with caps). This has really helped get the mobile internet going. So going back to much more limited/complicated pricing structures runs a good risk of backfiring.

After all, who will want to buy apps when those apps cost you extra to download? Who will want to use all those nifty video-on-demand features when it blows your allowance in one go? What happens when people (who are short of money right not) decide to play cautious and avoid using data?

It strikes me as a daft, short-sighted money-grab combined with a cynical “our fanboys will pay ANYTHING” attitude which could wreck a well-functioning market.

Andrew Hohenstein (profile) says:

Instead of looking at what the “average” or “median” user’s usage, it would be more useful to look at the number of users that go over 200MB once or more in a contract period (say 12 months), how often they go over, and by how much. Then among those, find the number of users that would end up paying more under a tiered plan of $15/200MB with their usage pattern over that 12 months, and see what percentage of users this is.

Looking at individual months is misleading. I think most user’s usage fluctuates quite a bit.

I suspect it’s even worse than it looks, actually. Under a $15/200MB plan, even if you went under 200MB every other month, if one month out of the year you get up to around 2600MB you might as well have had an unlimited plan the whole time. It would cost the same, and at least then you’d be having something closer to the experience the advertisements say you’ll be having.

bryan (profile) says:

Data usage growth

This same report also states that year over year data usage grew by %230.

Even the people who are not using much data are quickly increasing their usage.
The reported data usage also likely includes older phones that are not as capable (less powerful browsers and applications) and use less data because of it. Newer mobile OSs (Android, iOS, upcoming Windows Phone 7) all sue more data than older smartphones due to their connected nature (over the air backups, video, etc).

These factors mean that data usage is on the rise, and even the people who are not paying overages now will likely end up paying data overages before the end of their contract. The handset manufacturers and the networks are not going to stop marketing the data heavy capabilities of modern smartphones.

DanVan (profile) says:

I have been grandfathered into the old iPhone plan when I got the iPhone4 but I bet that the iPhone5 will FORCE people into the new plan.

AT&T is promoting everyone to use their data more yet for some odd reason (sarcastic tone) they want to charge those users more and more and more for it.

It is pathetic and the minute the AT&T give me a laughably low cap, I will ditch for a new phone/carrier….period

Rafael Junquera (user link) says:

Unlimited equals free

Hi Mike, you have always showed a very interesting point of view about the economics behind some of the market trends being reported here. I would love to hear your explanation about the mobile data economics. It would seem clear to me that mobile data it a scarce resource and by that I mean that not all users can consume unlimited amounts of mobile data without collapsing the network. Although this i improving with the introduction of newer technologies such as HSPA+ or LTE, still we are facing a situation where supply cannot meet in an unlimited fashion demand. If we are to allocate supply efficiently, would not data caps withy different prices be the most efficient way for operators and consumers?

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