Saturday, June 5, 2010

AT&T's War on the Internet

There's lot of commentary out there about AT&T's latest move to punish people for using the internet. Jeff Jarvis at BuzzMachine correctly points out in this post that what AT&T is doing is just plain evil:

John Gruber at Daring Fireball takes a good news/bad news approach. He's right about all the bad news, but wrong about the supposed "good."

On the bad side, as Gruber points out, yes, the tethering deal sucks, the overage charges for the lower priced tier are criminal, and changing the pricing structure on the iPad so quickly after it was released shows AT&T's contempt for its customers.

On the "good" side, Gruber is flat out wrong. First off, $25 for 2 gigabytes is not a price cut. AT&T is offering less for less. A lot less for a little less. iPhone customers originally were paying $30 for "unlimited" access (which was actually capped at 5 gigabytes so it never was unlimited). In order to get 5 gigabytes in the future, AT&T customers will now have to pay $55 almost double the previous rate. Like most iPhone customers, John may not have been using over 2 gigabytes, but it doesn't take much imagination to realize that the more people come to depend on their iPhones, and the more cool apps that come out, the more data they will need. How many people used the internet for much more than e-mail for the first few years it was around? The iPhone is still in it's infancy and this move by AT&T is an attempt to strangle it, and the iPad.

Charging $10 per gig isn't a good deal just because Verizon charges more. I can buy a new hard drive for less than $1 a gig. A real, physical hard drive. AT&T is charging for electrons passing through an existing network. John says, "If you use more, you pay more. Why is this hard to understand?"

Well, what if your cable company suddenly decided to charge you for how many hours of television you watched? It's not hard to understand that that would take a lot of the fun out of watching television. That that would represent a serious cut in service, regardless of whether you watched a lot of television. It's not hard to understand that providing 24 hour unlimited access to the service you paid for doesn't cost more than pennies, and that charging by the hour (or by the gigabyte) is simply a method of ripping people off. It also isn't hard to understand that once such a rate structure is crammed down the throat of customers with no other options, rates will likely increase.

What's hard to understand is why AT&T should be allowed to use the public airways to change the basic business model of the internet to the detriment of everyone but AT&T. Flat rates for service has been enormously successful in encouraging innovation and free content creation on the internet. For AT&T to use it's market share (gained by providing flat rates for unlimited service for 4 years) to unilaterally change the rules on what is now a critical communication and educational service is not acceptable. For AT&T to expect to be paid per bit for content created by others and services provided by others is wrong.

One of the great things about the internet is, up till now, if a child asks where Madagascar is, it can be looked up on the internet without any concern as to whether it will cost more. AT&T wants to change that equation. It wants people to be worried about how much they data they consume, not because it actually costs more, but simply to make additional profits. "Okay, dear, you can google Madagascar, but don't watch any videos about it! We can't afford it."

Gruber also seems to think that $14.95 for 200 megs is a "great" starting price buying into AT&T's bullshit that most smart phone customers use less than that. He correctly guesses that AT&T is deliberately trying to confuse things by saying "smart phone" rather than "iPhone." But Gruber still thinks a lot of iPhone users will find this a deal. Well, they won't. The average iPhone users uses 270 megs, and the average person's usage grows every year. So the entry level price won't work for all but a few iPhone users, and odds even they will bump over the limit and into AT&T's excessive overage fees.

Gruber also fails to note that AT&T is lowering the starting rate from 250 megs to 200 megs on the iPhone. Where's the discount there? By cutting one fifth of customers monthly allowance, it's clear AT&T is not serious about providing a low cost option. The $25 deal is really the only option for anyone who actually plans to use an iPhone. $14.95 simply functions as a misleading price point. (And if we are to assume that these electrical bits have some actual cost associated with them, why does it cost over half as much money for a tenth as many bits? Why not simply a 1gig $14.95 option and a 2gig $25 option?)

The bottom line is: AT&T has been profiting enormously by providing unlimited (5gigs) data service on iPhones for $30. Now everyone will be paying $25 for half of what they were getting before, just as new iPhones and iPad are coming out that will likely consume a great deal more data.

Gruber may not be concerned about his iPhone usage because he also pays for an home internet connection. That's great if you're making enough money to have the option of paying for two separate ways to access the same service. One of AT&T's goals is clearly to keep customers viewing smart phones as a secondary way to access the internet, and thus protect it's land line business. While that may be nice for AT&T, to charge extra for one service to force you to buy another, it's not good for customers or frankly… America.

It's a huge rip off, and one that people need to actively fight. Customers should refuse to patronize AT&T, and Congress and the FCC should demand AT&T change it's policies. America has the worst, most expensive, and slowest internet service of any modern nation. AT&T's new plans encourage it to continue to provide lousy service at high prices. And that is too high a price to pay.

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