Sunday, February 21, 2010

AT&T Hungers for Tiered Pricing Like The Dark Lord Hungers for the One Ring

There is no logical basis for tiered pricing of data, including phone calls, texting, and internet access. Data is not like water, or even electricity for that matter. It doesn't cost significantly more to provide unlimited amounts once you have build out the capacity for it. The costs of keeping track of, billing and limiting data is far greater than the marginal costs of providing unlimited data. (This is, of course, one of the key points of net neutrality.)

Customers also hate tied pricing and unpredictable billing associated with it. In fact, customers hate is so much, they will go to great lengths, to avoid it. Companies that only offer tiered pricing are always beat by companies that offer fixed pricing. So it's only when customers don't have a choice that they will reluctantly accept tiered pricing.

Despite all this, AT&T (and Verizon) are desperate to fight the battle against fixed pricing (unlimited plans) and institute tiered pricing over the wishes and best interests of their customers. They talk about "data hogs" but what they really want is to bleed customers like stuck pigs. Unfortunately, they haven't completely been able to buy up all their competition and force customers to accept tiered pricing, yet. But they're working on it.

In the meantime, they keep trying to float the "tiered pricing" trial balloon in the media, always with embarrassing results. Never-the-less, their PR flacks are ordered to keep trying and so we get this completely fake "news" story planted in the Chicago Sun Times today that says fixed pricing's days are numbered:

So what's the news here? Nothing. In fact, all evidence points to the opposite of what is being "reported." AT&T and Verizon are expanding unlimited plans, not shrinking them, and MetroPCS seems to think phones with unlimited talk, text and data should only cost $40 a month (they even pick up taxes).

The only "evidence" provided that tiered pricing is needed is that "3 percent of smart-phones account for 40 percent of traffic on AT&T's network." Of course, the truth about this statistic is that 97 percent of AT&T smart phone customers aren't using their phones as much as their phones are capable. That is, most people are playing a lot for 24 hour access to data they never use. This is the truth behind fixed pricing. That people end up paying extra for stuff they don't use. 97 percent of people in this case. That's why AT&T is hugely profitable right now.

So what are the sources to prove that "tiered pricing" is inevitable? A months old quote by AT&T exec Ralph de Vega which he has already half retracted and an analyst who offers "The main point is to start to educate customers away from what they were trained to think…"

How can they be educated by AT&T to stop thinking they don't want to pay wildly fluctuating bills? With fake news stories about a fake upcoming crisis that will require tiered pricing?

Right now, AT&T is the most profitable cell phone provider primarily because it is making tons of profits off the iPhone. The iPhone offers fixed pricing on internet access (something Apple insisted on) and AT&T wants to kill that. It knows it can't now, but it wants to in the future. So it thinks it needs to lay the ground work with fake news stories so later when it takes over smaller companies, kills competition, and gets government to support anti-competitive practices it will be in a position to force tiered pricing as "necessary."

It is staggering that the leadership of AT&T cannot understand that simply wanting something is not the same as needing something. And that there are things you might want that are bad for you. Like bleeding your customers dry for no reason other than short term profit gains. They seem oblivious to the history of business and technology that shows time and time again that companies that fight against the best interests of their own customer ultimately lose. If AT&T got what it desired, a monopoly on cell phone traffic and tiered pricing, it would create a massive market for a new technological breakthrough that would provide fixed pricing to customers who dumped AT&T. If it wasn't for it's lucky deal on the iPhone and Apple's foresight in insisting on fixed pricing for the iPhone data, AT&T would probably be bankrupt now. That it is unable to understand it's good luck with iPhone and learn from it, is staggering.

But since AT&T isn't capable of thinking like a new technology company, and focusing on innovative ways to serve it's customers better, it instead wastes valuable resources planting these fake news stories in dying media like newspapers. The purpose, of course, is to try to confuse the issue enough so AT&T can make backdoor deals with the FCC and other carriers and force tiered pricing down customers throats.

The brass ring for short term thinking AT&T execs is not getting the 3 percent of "data hogs" to pay more. Those tech savvy high use users will be the first dump AT&T if it has anything truly resembling real tiered pricing. The goal is to force those 97% of people who don't use a lot of data to occasionally pay extra if they bump over a fixed limit. Much as AT&T likes to talk about billing people for data "like water" the reality is people will simply stop using their phones much if they have to pay for every bit. The goal is to create occasional billing spikes when a customer does something unexpected to bleed an extra twenty bucks out of someone who is already struggling with monthly bills.

It won't work and AT&T probably knows it won't. But their leadership probably thinks it's "worth a try." After all, they confused people for a couple decades with bullshit billing for "minutes" and "rollover minutes" and "nighttime minutes." Why shouldn't it work again this time? But let me be the first to tell them that really need to knock this off. This is not 1970. Whether AT&T gets it or not, they are at a technological crossroads. And if they don't get their act together soon, they will be left behind like AOL, GM, and other big corporate dinosaurs who stopped serving their customers and thought their customers should serve them.


  1. I agree with lots of your points. Phone companies love to trick you into getting over your limits and then charging you mercilessly, by surprise.

    I was not quite aware that this is a business model to make major income, but probably you are right.

    Now I think there is a thing as "abusive" network use. If you spend day and night, 24 hours a day, at 4 megabits (0.4 MB/s) per second, uploading, downloading, exchanging data. 24 MB per minute, a Gigabyte per hour, 24 Gigabytes per day, 600 Gibabytes per monty, over air waves, that is clearly abusive. Even a tenth of that. After all you bought a cell phone plan.

    Even if I understand file exchangers, even if I myself might enjoy this, this is causing extra cost and congestion. Even on DSL or cable, but certainly airwaves have lower carrying capacities then fiberglass cable.
    Anyone can calculate what the bandwith of one cell phone band is? Seems it is just a few megabits/sec for all customers in one cell?

    There should be a sanity limit. I know Telecoms in Brazil who after 4 GB monthly traffic just put you on a low speed access. This looks better then surprise charges, sudden cutoff or contract cancellation.

  2. Yeah, this is the "data hog" argument. "Abusive" people who download "data" 24 hours a day on their iPhone.

    I doubt this really exists. Who is really using an iPhone to download and upload a lot of stuff? Why wouldn't you simply go to a computer? Also, it's a lot faster to go to a wifi connection if for some reason you want to use your iPhone a lot for data downloading. (And you can go to a McDonald's and get it from AT&T for free.)

    There are probably high end business users, who do a lot with their iPhones. But those people are extremely valuable customers, who probably spend a lot of money on texting (60 cents a pop back and forth) and international calling. Plus they probably use AT&T business services. So why would you want to punish rich high end customers? It doesn't make any sense.

    Don't be fooled, all this talk about "data hogs" is simply a cover for charging the average customer more.