Monday, August 27, 2012

Blowback From AT&T's Evil Pay-Per-Bit Plan

It wasn't supposed to go down like this.  By now, everyone was supposed to be happily paying for data services in "tiers."  AT&T, and their paid sock puppet bloggers and media mouthpieces, have been explaining for years it was simply technically impossible to keep offering "unlimited" data.  Not only that, it was unfair, detrimental to society, and preventing AT&T from offering all sorts of wonderful things like tethering.  A small number of evil "data hogs" had been ruining everything, they were responsible for all of AT&T's service problems, and needed to be stopped.  The average American would be much, much happier with a new arrangement where people paid-per-bit for internet use.   And, even if people aren't happy, it is simply impossible to offer unlimited data, so just suck it up.

Unfortunately, for AT&T, nobody believed it.  Millions of AT&T customers (almost half) continue to get "unlimited" service despite AT&T's best efforts to lure and (more often) force them to switch to pay-per-bit.  They hold on despite AT&T throttling them, bulling them with threats that they are over limits, and now refusing to provide specific services (FaceTime) despite the questionable legality of it.

Worse, the number of competing cell phone companies offering unlimited service is growing, not shrinking.  T-Mobile has just joined Sprint and Metro PCS in offering true unlimited data.   Metro PCS has even dropped their prices on unlimited data.  Sprint is signing up tons of new iPhone customers to unlimited data plans with no apparent fear of data hogs.  Unlimited data is the big selling point for all three companies.

Equally bad, Verizon has refused to join AT&T in punishing its own unlimited customers who want to use FaceTime.   It also offers much larger buckets of data at its lowest tier.   And easier upgrades.  And no throttling.  How long before Verizon gives up and starts offering unlimited service again?

Of course, if it was really impossible to offer unlimited service, AT&T should be cheering.  These companies are slitting their own throats.  "Data Hogs" will flock to their services and overwhelm them.  The cost of providing unlimited data should bankrupt them.  Meanwhile, AT&T can concentrate on the wonderful customers that see the wisdom of their superior data pricing plans.

Unfortunately, it was all a lie.  It doesn't really cost much more to provide unlimited service and the technical issues are easily solvable.  The "data hog" high volume users are the most valuable customers to have.   Even low data use customers prefer one price service regardless of their data use because they hate data penalties.  Moreover, AT&T's tiered pricing plans weren't cheaper for anyone, even low data users, and no one believed the any of the bullshit that they would be.

So AT&T, having gone all out against unlimited, is bleeding market share rapidly.  It started with 100% of all new iPhone customers thanks to a special deal with Apple.  But it's barely holding on to a third of new iPhone users now that Apple has opened up the market.  If T-Mobile and Metro-PCS get to offer the new iPhone 5, AT&T's stance on unlimited data could doom it to fighting for second place in a highly competitive five company race in what was supposed to be a comfy duopoly with Verizon.

So AT&T tried to pull the wool over everyone's eyes, and it's not working.  Okay.  Why can't AT&T just throw in the towel and give customers what they want: unlimited data?  Because, if they do there will be no going back in the foreseeable future.  Their great dream of technological domination of the internet will be dead.

You see, this was never about charging people extra for more data.  AT&T's plan from the beginning was to completely reinvent the internet.  Instead of it being a wonderful place where people share free information and entertainment, AT&T wants people to pay a fee for everything they look at.  They want people to pay for sharing information.  Instead of the internet being a place where any business can open up a shingle for the cost of a connection, they want businesses to pay AT&T for the privilege of selling their services.  The bigger the business, the more you pay.   Want to stop your competitors?  Pay extra, and AT&T will make sure you get to the front of the line. 

Oh, and while they're at it, AT&T wants you to pay for data you don't even use, for fear of being charged extra if you go over your data limits.  In other words, AT&T wants to charge for everything but data.  The way to do that is to create an artificial cost to data use.

If the issue really was about charging for data, AT&T would simply do what any competitive business would do, provide the customers with want they want, at a price.  You want unlimited data, pay extra for it.  AT&T could offer a low data, medium data, and unlimited data plan.  The problem is, most people would opt for the unlimited data plan.

But then AT&T can't charge people for data they don't use.  You see, AT&T fondly remembers the days of night time minutes and daytime minutes and confusing long distance charges.  They love gouging people for overages.  They love people paying for extra data each month for fear of going over.  If everyone either gets an unlimited plan, or simply buys cheap plan and never uses their data, how can AT&T invent complicated ways to raise customers bills every month?  And if the bills aren't complicated, then AT&T has to compete on service and price.  That's something they clearly don't want to do. 

More importantly, if too many people have unlimited data plans, how can AT&T start charging businesses for providing free data to customers, as it has been hoping to do for some time?  You see, back in the good old days before the internet, when Ma Bell controlled all the phone lines, it got to double and triple dip on its profitable strangle hold on communications.  Customers had to pay a monthly fee just to have access to a phone line.  Then you had to pay extra for long distance calls.  On top of that, businesses paid extra for offering "free" 800 numbers to get around long distance charges.  Get it?  You charge people for phone service, but you don't really give them the full service.  You charge them extra for "long distance" even though it doesn't really cost any more than a local call.   Then you charge businesses money for allowing people to make long distance calls to them (800 numbers).  This was a great set up for AT&T.  Basically, all their real costs were absorbed by monthly access charges, they created an artificially high price for long distance calls, and then charge businesses who want to help customers get around those artificial prices.  It's a win-win situation.  AT&T wins and wins.  Everyone else loses.  This is, naturally, why AT&T was broken up after a huge court battle.  Because the whole thing gave AT&T little reason to innovate, lots of reasons to suppress technology, and was a total rip-off of customers.  (As we found out when long distance charges dropped dramatically almost overnight once there was competition.)  It was, the ultimate evil business monopoly and many books have been written about how abusive it was.  Bad for customers, bad for businesses (except AT&T) and bad for America.   Do a little research and you'll be amazed they managed to get away with the whole thing for as long as they did.  AT&T longs to return everyone back to those bad old days.  (Maybe they also want the Soviet Union back.  I don't know.)

The problem is, the internet wasn't set up for AT&T to make extra money charging for nothing.  Customers long ago made it clear they prefer a one price "unlimited" billing when it comes to internet use.  The flat rate basically forced internet providers to simply complete on price and speed.  Flat pricing allowed many businesses (motels, coffee shops, apartments) to offer internet service for free, further undermining the idea that people should pay-per-bit.  AT&T jumped into the game late, buying up internet providers and killing competition.  Now it wants to rewrite the entire pricing structure.  But it's probably too late.

There seemed to be a window for AT&T a few years ago to try to reinvent the game.  Providing data over cell phone towers was technologically challenging and helped to limit completion.  AT&T had an unusual and highly profitable monopoly alliance with Apple which injected them with a lot of cash to build up smart phone infrastructure thanks to the surprise success of the iPhone.  Meanwhile, cable companies, which controlled most of the fastest wired internet services, were scared that free data would hurt their super profitable TV service.

So, all it would take was a little friendly collusion between Verizon, AT&T's only serious cell phone competitor, and the cable companies to force people to change their habits and accept inflated per-bit pricing.  The problem is, AT&T got greedy and impatient.

First, they didn't take advantage of their iPhone monopoly by keeping customers happy and investing in the best infastructure.  Instead, they overcharged customers, provided crappy service and limited features (no tethering) to the point that they pissed off Apple and lost their hold on the most important tech product in the marketplace.  Meanwhile, they let their old land lines fall apart by refusing to invest seriously in fiber, pissing off those customers who they continued to overcharge for basic phone service and lousy DSL internet access.  They invested heavily (both financially and with government lobbying) to compete with cable to offer TV service when that was clearly a fading long term proposition.  And they mounted a laughable campaign about "data hogs" that completely telegraphed their evil intentions to change the rules in ways that would not benefit their customers, or the powerful internet businesses that used their services.  Rather than gradually raising data prices or lowering “unlimited” limits, the proper way to boil a frog, they seemed to think they could talk the frog to jumping into a burning pot by convincing him it was cold.

It would have all worked as long as they could have continued to buy up competing companies, so customers wouldn't have a choice.  But by the time they set their sights on T-Mobile, any argument that AT&T was a company that the American public (and their legislators and business regulators) wanted to control their technological future was lost.  When that deal was rejected, AT&T's dream of destroying unlimited data was in serious trouble.  AT&T should have held back and waited, but instead they went full steam ahead, hoping their competition would jump on board.  Verizon, did, kind of, but increasingly it seems like they're waiting for AT&T to go over the cliff first, then turn back.

Now, Sprint has the iPhone and is doing very nicely being the only company that offers unlimited data for it.  AT&T is giving them a huge marketing advantage while they shore up their infrastructure, and they seem to be taking it more seriously than AT&T did when it had its Apple monopoly.  AT&T not only didn’t get to gobble up T-Mobile, but now T-Mobile has an extra four billion dollars of AT&T's money thanks to the deal’s kill fee.  That can build a lot of infrastructure for unlimited offerings.  And, of course, Metro PCS has never played by anyone else's rules and has been built on low cost unlimited service.

So just when AT&T is hoping everyone will be talking about their new data bucket plans, instead people are talking about whether or not it's legal for AT&T to deny their long term customers FaceTime.  And instead of "data hogs" people are talking about cuts in unlimited service prices.

I'm not the most optimistic of people, but it's hard for me to see how AT&T is going to keep charging people tiered pricing, despite what a disaster it will be for them to admit they were wrong and change course on unlimited data.  So I'm hopeful this huge money and power grab will not succeed.  As the saying goes, what's bad for AT&T is good for America.