So Netflix caved in to Comcast and started paying to play in order to have decent internet connections to its subscribers. It's part of the erosion of net neutrality that has been a dream of ISP providers since they started buying up all the little guys and forming a nice information oligarchy. Of course, now that Comcast got their cut, AT&T and Verizon want theirs. As Cory Doctorow points out, this is simply extortion.
But the question in my mind is whether they're winning this war, or if they won a battle they may regret. Because the cat is definitely out of the bag now. The big ISP players are at war with the internet as we know it, and forces are lining up against them. Netflix, itself, might have given in to Comcast just to force the debate, as we can guess from this terrific posting by Reed Hastings:
INTERNET TOLLS AND THE CASE FOR STRONG NET NEUTRALITY
Of course, AT&T had to reply and make their own argument that net neutrality sucks. Jim Cicconi tries his best to spin it:
AT&T HATES NETFLIX SUBSCRIBERS
As usual, AT&T only has one argument as to why it should screw over not only it's own customers, but also other business and the the future of technology. It's the tired and unsuccessful divide and conquer technique. "Why should those greedy Netflix customers have all the fun? Don't you hate those Netfix customers, wanting free bandwidth!? Netfix doesn't want to pay their own share! Let Netflix pay, and charge its subscribers more!"
It's a spin on the successful welfare queen political tactic where you divide the poor against each other by saying some are getting more than others. The goal is to get them to hate each other more than the rich people taking advantage of them. The rich people are obviously AT&T (and the other ISPs) and the poor people are Americans since we pay more for the some of the worst service in the civilized world.
So now, not only to we overpay for third world service, but AT&T wants individual companies to provide it with payola if they want their popular offerings available. This is classic double dipping, and it should be illegal. The problem for AT&T is these deals are supposed to be done in back rooms, without the public knowing what is going on. Reed Hastings is breaking rank by going public about it. So AT&T feels the need to respond. But they don't have much of an argument. Except divide and conquer. "You think your service sucks now? You think you're over paying? Yeah, well if those assholes who subscribe to Netflix have their way, you'll pay even more. Why should they get a free lunch. Make them pay. And maybe… we might not charge you as much for our shitty service." Hey, it seemed to work for the Republicans, why not? It's a riff on the old "data hog" argument where AT&T tried to convince everyone that it was a great idea to charge pre-bit (also double dipping) because data hogs were watching too much porn.
The problem is, the Republicans "welfare queen" attack was taking advantage of long standing racism. I'm not sure AT&T will be so successful whipping up hatred of people who like "House of Cards." On top of that, the Republicans weren't getting much in the way of a black vote anyway, so covertly blaming them for all the problems in the world wasn't so dangerous. But Netflix subscribers are probably the best customers AT&T could have. People who really want to use their service. So attacking their best customers doesn't seem to be a good business or political move.
Politically, AT&T already lost its attempt to buy T-Mobile and paid a huge price. I blame it in part their rush to charging a pay per bit model which undermined their promises of great low cost service once the merger was approved. No one believed them. AT&T still needs the good will of politicians to advance it's long term interests. Attacking a large upscale sector of their own customer base probably isn't a good idea. Netflix customers are voters. They can write their congressmen. They can lobby to have their cities provide free internet service or take advantage of Google's fiber efforts.
On the business side, what is AT&T going to do if Netflix decides to pay off everyone… but AT&T? With a solid deal with Comcast in place, Netflix could make a quiet deal with Verizon and then punish AT&T by not making a deal and making them explain why their Netflix service sucks. Or by moving very slowly to make a deal, and leaving AT&T out in the cold for as long as possible.
While there is clearly not enough ISP competition in the United States, there is some. Apple fans are learning that AT&T is not the best place for iPhone customers. (Try Sprint.) Does AT&T really want to be known as the ISP you never use if you love Netflix?
Tuesday, March 25, 2014
Wednesday, January 29, 2014
T-Mobile Gloats Over AT&T's Latest Idiotic Move
I didn't write this. Honestly, I didn't. But it sure reads like I did:
T-MOBILE GLOATS OVER AT&T'S LATEST IDIOTIC MOVE
Not often does a major corporation find itself compelled to issue whimsically sarcastic press releases. But, as the press release points out, AT&T's poorly thought out reaction to T-Mobile's chess moves must be laughed at. They are giving customers an extra reason to leave and test T-Mobile.
As I said before, AT&T really needs to figure out what marketing niche they want to compete in. Do they want to compete on price? Or on service? Or coverage? Or simply flail about without a long term plan other than to be Number 2 to Verizon and more expensive than Sprint or T-Mobile?
T-MOBILE GLOATS OVER AT&T'S LATEST IDIOTIC MOVE
Not often does a major corporation find itself compelled to issue whimsically sarcastic press releases. But, as the press release points out, AT&T's poorly thought out reaction to T-Mobile's chess moves must be laughed at. They are giving customers an extra reason to leave and test T-Mobile.
As I said before, AT&T really needs to figure out what marketing niche they want to compete in. Do they want to compete on price? Or on service? Or coverage? Or simply flail about without a long term plan other than to be Number 2 to Verizon and more expensive than Sprint or T-Mobile?
Friday, January 3, 2014
AT&T Struggles to Find It's Future in a World of Competition
I've been talking a lot lately about how AT&T's disastrous over reach in their failed bid to buy T-Mobile seriously damaged the company's long term prospects by creating a powerful competitor that can chew out profits from the low end of the market.
And clearly the top management at AT&T is starting to sweat, making a desperate bid to bribe T-Mobile customers to switch to AT&T.
T-Mobile CEO Laughs at AT&T's Desperation
It won't work and it's absolutely the wrong move for AT&T. T-Mobile's customers are much more likely to be price sensitive, and long term thinking (since they made their reputation on no-contract deals). Not many are going to rush to take a quick bribe from AT&T in order to get locked into higher overall rates, from a company known for horrible rates. Also, where did all these new T-Mobile customers come from? Mostly from people fleeing AT&T's lousy service and price gouging. Not likely they're going to be fooled into coming back soon.
Now, in fairness, AT&T management probably knows it won't work, but they are simply trying to preempt T-Mobile's announcement of a similar deal to lure buyers away from AT&T. Maybe if customers get confused, they'll just assume all the carriers are the same. If T-Mobile offers incentives to switch, then AT&T will offer incentives. If T-Mobile offers no-contract deals, then AT&T will offer no contract deals. If T-Mobile offers unlimited data, then… opps!
Unlimited data? AT&T was supposed to have won that battle long ago. After all, hadn't they patiently explained over and over that it was impossible to have unlimited data plans? Didn't they pay tons of tech bloggers to say that tiered data was inevitable? That is was un-American to even consider that you shouldn't have to pay per bit? Remember all those evil data hogs that were ruining it for everyone?
Of course, it was all bullshit and part of AT&T's grand plan to double dip on phone service by charging everyone per bit, and then getting businesses to pay an extra fee to directly to AT&T to not charge customers for those bits. It was the kind of plan that could only work if AT&T had a monopoly (or close to with collusion from Verizon). But Sprint didn't bite and now it and T-Mobile steal customers away by the millions offering "unlimited" data.
AT&T's latest announcement shows that's its making so much money per customer it can offer a $450 bribe just to try to lock them into to their uncompetitive rates. So how long before AT&T has to bite the bullet and offer unlimited data again? Not long, I would guess.
AT&T cannot win chasing after T-Mobile in a race to the bottom. They need to shift gears quickly while they still have much larger market share and can at least claim to have better coverage. So here's a five point plan to save AT&T:
1. Get rid of tiered data. Customers hate it. Fine, you can offer a 5gb plan as "Unlimited," and have some pricing for tiers over that, but stop trying to force people into ridiculous 300MB plans to further your impossible dreams of double dipping. It won't work. Offer one simple plan, preferably with a throttled cap after 5gb, and then a high data plan for high use customers with no throttle. Keep it simple. That's what customers want. And then they will be willing to play a little more for AT&T coverage.
2. Embrace the iPhone. Stop trying to talk customers into crappy Android and other low end phones. You just make enemies of one of the best customer bases: Apple fans.
3. Embrace subsidies. Rather than lecture customers that subsidies need to go away, AT&T should offer the best ones. That is, after all, how it built its smart phone base to begin with. Much better to offer the iPhone 5S for free, rather than $199, then try to bribe a low rent T-Mobile customers with $450 to switch. Offer something that T-Mobile won't match. Highly subsidized iPhones. Then go ahead and lock people into long term plans at higher rates, but at least they got something they want upfront. Do it all one better by promising a $99 upgrade to the latest iPhone anytime they are released in the future. That would bring in the customers and still probably cost less that $450.
4. Embrace the iPad and iPad mini. Early on AT&T dismissed the iPad. Huge mistake. It costs extra for people to buy a cell connected iPad. AT&T should give them every incentive to do it. Anyone with AT&T phone service should get a free 500mb monthly for their AT&T connected iPad. And a huge discount on 5gb and beyond. The carriers are crazy not chasing after this market. Rather than encouraging people to use wifi on their iPads by making it too expensive, they should get them used to the idea that cell service is more convenient. Even if eventually they raise prices on it. (I don't expect AT&T to give up evil completely.)
5. Put an emphasis on premium service. AT&T service sucks. Rather than chase after the low end of the market, they need to make it clear they charge a little more, but offer better service. This will be hard, but it's absolutely necessary. At minimum, their marketing needs to emphasize better service to justify their higher prices. They can't fool anyone into thinking their the cheapest carrier anymore. And they shouldn't want to be the cheapest carrier. They should act like a premium service.
If none of this works they can always switch gears and race for the bottom. But if they don't try this first, they won't have the option later. If it works, being the premium service is much better in the long run.
And clearly the top management at AT&T is starting to sweat, making a desperate bid to bribe T-Mobile customers to switch to AT&T.
T-Mobile CEO Laughs at AT&T's Desperation
It won't work and it's absolutely the wrong move for AT&T. T-Mobile's customers are much more likely to be price sensitive, and long term thinking (since they made their reputation on no-contract deals). Not many are going to rush to take a quick bribe from AT&T in order to get locked into higher overall rates, from a company known for horrible rates. Also, where did all these new T-Mobile customers come from? Mostly from people fleeing AT&T's lousy service and price gouging. Not likely they're going to be fooled into coming back soon.
Now, in fairness, AT&T management probably knows it won't work, but they are simply trying to preempt T-Mobile's announcement of a similar deal to lure buyers away from AT&T. Maybe if customers get confused, they'll just assume all the carriers are the same. If T-Mobile offers incentives to switch, then AT&T will offer incentives. If T-Mobile offers no-contract deals, then AT&T will offer no contract deals. If T-Mobile offers unlimited data, then… opps!
Unlimited data? AT&T was supposed to have won that battle long ago. After all, hadn't they patiently explained over and over that it was impossible to have unlimited data plans? Didn't they pay tons of tech bloggers to say that tiered data was inevitable? That is was un-American to even consider that you shouldn't have to pay per bit? Remember all those evil data hogs that were ruining it for everyone?
Of course, it was all bullshit and part of AT&T's grand plan to double dip on phone service by charging everyone per bit, and then getting businesses to pay an extra fee to directly to AT&T to not charge customers for those bits. It was the kind of plan that could only work if AT&T had a monopoly (or close to with collusion from Verizon). But Sprint didn't bite and now it and T-Mobile steal customers away by the millions offering "unlimited" data.
AT&T's latest announcement shows that's its making so much money per customer it can offer a $450 bribe just to try to lock them into to their uncompetitive rates. So how long before AT&T has to bite the bullet and offer unlimited data again? Not long, I would guess.
AT&T cannot win chasing after T-Mobile in a race to the bottom. They need to shift gears quickly while they still have much larger market share and can at least claim to have better coverage. So here's a five point plan to save AT&T:
1. Get rid of tiered data. Customers hate it. Fine, you can offer a 5gb plan as "Unlimited," and have some pricing for tiers over that, but stop trying to force people into ridiculous 300MB plans to further your impossible dreams of double dipping. It won't work. Offer one simple plan, preferably with a throttled cap after 5gb, and then a high data plan for high use customers with no throttle. Keep it simple. That's what customers want. And then they will be willing to play a little more for AT&T coverage.
2. Embrace the iPhone. Stop trying to talk customers into crappy Android and other low end phones. You just make enemies of one of the best customer bases: Apple fans.
3. Embrace subsidies. Rather than lecture customers that subsidies need to go away, AT&T should offer the best ones. That is, after all, how it built its smart phone base to begin with. Much better to offer the iPhone 5S for free, rather than $199, then try to bribe a low rent T-Mobile customers with $450 to switch. Offer something that T-Mobile won't match. Highly subsidized iPhones. Then go ahead and lock people into long term plans at higher rates, but at least they got something they want upfront. Do it all one better by promising a $99 upgrade to the latest iPhone anytime they are released in the future. That would bring in the customers and still probably cost less that $450.
4. Embrace the iPad and iPad mini. Early on AT&T dismissed the iPad. Huge mistake. It costs extra for people to buy a cell connected iPad. AT&T should give them every incentive to do it. Anyone with AT&T phone service should get a free 500mb monthly for their AT&T connected iPad. And a huge discount on 5gb and beyond. The carriers are crazy not chasing after this market. Rather than encouraging people to use wifi on their iPads by making it too expensive, they should get them used to the idea that cell service is more convenient. Even if eventually they raise prices on it. (I don't expect AT&T to give up evil completely.)
5. Put an emphasis on premium service. AT&T service sucks. Rather than chase after the low end of the market, they need to make it clear they charge a little more, but offer better service. This will be hard, but it's absolutely necessary. At minimum, their marketing needs to emphasize better service to justify their higher prices. They can't fool anyone into thinking their the cheapest carrier anymore. And they shouldn't want to be the cheapest carrier. They should act like a premium service.
If none of this works they can always switch gears and race for the bottom. But if they don't try this first, they won't have the option later. If it works, being the premium service is much better in the long run.
Wednesday, December 11, 2013
Why AT&T Hates Apple: Part 2
Follow up to my last piece on AT&T's ongoing dilemma with subsidies, a problem they created in the first place. CEO Randall Stephenson spoke at an investor conference in New York yesterday and declared that "… the model has to change."
WE STILL HATE IPHONES
This pretty much confirms my original guess that Sam Mattera's report on subsidies for The Moltey Fool, that if they disappear it's bad for Apple, was influenced or even planted by AT&T PR people. They wanted to set the negative Apple spin before Randall Stephenson's speech.
Rather than dwell on the absurdity of all this wishful thinking that losing subsidies will hurt Apple's growing grip on the cell phone industry, I'd like to offer some friendly advice to Mr. Stephenson. It's a famous quote from the Godfather:
"Never tell anyone outside the Family what you're thinking again."
Stephenson has hardly proven himself to be a visionary in the telecom industry. But regardless of what personal opinions he has about whether subsidies are good or bad, whether they help or hurt Apple, or whether they help or hurt AT&T, he should think before he speaks.
AT&T is facing a huge problem as real competition takes hold in the mobile marketplace. There is going to be a race for the bottom, which during the speech he euphemistically addresses this by saying it's a "… new opportunity in going down market." Yes, it is an opportunity: to get less money for providing the same services you used to overcharge for.
But it's silly for AT&T to talk about subsidies going away until they're really ready to kick the habit. He's basically saying that his competitor, T-Mobile, is already ahead of AT&T. Hardly makes him look like a visionary. More like a waffle. And what are customers to think? Oh, I should really rush and get an new iPhone while subsidies last at AT&T? Or, I should really dump AT&T now because I'm sick of hearing how they keep wanting to take things away from us in the future. AT&T has learned nothing from their unlimited data grandfathering debacles?
More importantly, AT&T's best hope in the short run, and quite possibly in the long run, is to try to brand itself as a premium service. Yes, that's hard given how crappy their customer service has been. But they still have a little of the aura of being the exclusive carrier of iPhones, and they still have some coverage advantages over T-Mobile and Sprint. The better line for the company is to say, "Yes, we proudly offer subsidies because that's what our customers like. And our main goal is to satisfy our customers." Or perhaps, "We're a premium service, and subsidies are part of the premium."
Instead, Stephenson complains about breaking customers of their annoying habit of wanting to upgrade their iPhones every two years. Annoying for AT&T, not for customers. Premium customers want to upgrade frequently, and those are the people AT&T should be targeting and trying to retain. They shouldn't be trying to to convince them they should settle for less. (While also expecting them to pay a premium for AT&T service over T-Mobile and Sprint.) Even if Stephenson believes it's best for AT&T in the long run, he shouldn't say it. But guess what, it's not good for AT&T. The AT&T brand should be focusing on the top end of the market, and their sub-brands like Leap can race to the bottom. And the quickest way to piss off an iPhone lover is to tell them they can't upgrade.
This is particularly a mistake for AT&T because Sprint has fully embraced the iPhone, fully embraced subsidies, and has the best upgrade policies and UNLIMITED DATA, which is what premium iPhone customers want. The last thing AT&T needs is for Sprint to be perceived as being more iPhone friendly than AT&T.
Hopes of a mobile monopoly or oligarchy are rapidly vanishing. Right now, in terms of brand, I think the general perception is that Verizon has the best service and coverage (but higher prices), Sprint offers unlimited data and is more iPhone friendly, and T-Mobile is the rising champ of low cost/no contract. What is AT&T? They're the first ones to get rid of unlimited data. Yeah, customers loved that! So now AT&T wants to get the word out their future is to chase after T-Mobile's no contract customers and dump subsidies? (But not follow T-Mobiles Unlimited data options?) Bad messaging. Really, really bad messaging.
I suspect some of this undercover Apple bashing is an effort by AT&T to position itself as having leverage whenever it is forced to negotiate with Apple over business issues like how many iPhones they have to pre-buy, etc. Negotiations Apple always wins anyway. But whatever these beefs are between AT&T and Apple, they shouldn't be aired in public as long as iPhone customers continue to be the best customers a mobile service can have. So we'll end with another helpful Godfather quote:
"Keep your friends close, but your enemies closer." AT&T needs to stay close to Apple.
WE STILL HATE IPHONES
This pretty much confirms my original guess that Sam Mattera's report on subsidies for The Moltey Fool, that if they disappear it's bad for Apple, was influenced or even planted by AT&T PR people. They wanted to set the negative Apple spin before Randall Stephenson's speech.
Rather than dwell on the absurdity of all this wishful thinking that losing subsidies will hurt Apple's growing grip on the cell phone industry, I'd like to offer some friendly advice to Mr. Stephenson. It's a famous quote from the Godfather:
"Never tell anyone outside the Family what you're thinking again."
Stephenson has hardly proven himself to be a visionary in the telecom industry. But regardless of what personal opinions he has about whether subsidies are good or bad, whether they help or hurt Apple, or whether they help or hurt AT&T, he should think before he speaks.
AT&T is facing a huge problem as real competition takes hold in the mobile marketplace. There is going to be a race for the bottom, which during the speech he euphemistically addresses this by saying it's a "… new opportunity in going down market." Yes, it is an opportunity: to get less money for providing the same services you used to overcharge for.
But it's silly for AT&T to talk about subsidies going away until they're really ready to kick the habit. He's basically saying that his competitor, T-Mobile, is already ahead of AT&T. Hardly makes him look like a visionary. More like a waffle. And what are customers to think? Oh, I should really rush and get an new iPhone while subsidies last at AT&T? Or, I should really dump AT&T now because I'm sick of hearing how they keep wanting to take things away from us in the future. AT&T has learned nothing from their unlimited data grandfathering debacles?
More importantly, AT&T's best hope in the short run, and quite possibly in the long run, is to try to brand itself as a premium service. Yes, that's hard given how crappy their customer service has been. But they still have a little of the aura of being the exclusive carrier of iPhones, and they still have some coverage advantages over T-Mobile and Sprint. The better line for the company is to say, "Yes, we proudly offer subsidies because that's what our customers like. And our main goal is to satisfy our customers." Or perhaps, "We're a premium service, and subsidies are part of the premium."
Instead, Stephenson complains about breaking customers of their annoying habit of wanting to upgrade their iPhones every two years. Annoying for AT&T, not for customers. Premium customers want to upgrade frequently, and those are the people AT&T should be targeting and trying to retain. They shouldn't be trying to to convince them they should settle for less. (While also expecting them to pay a premium for AT&T service over T-Mobile and Sprint.) Even if Stephenson believes it's best for AT&T in the long run, he shouldn't say it. But guess what, it's not good for AT&T. The AT&T brand should be focusing on the top end of the market, and their sub-brands like Leap can race to the bottom. And the quickest way to piss off an iPhone lover is to tell them they can't upgrade.
This is particularly a mistake for AT&T because Sprint has fully embraced the iPhone, fully embraced subsidies, and has the best upgrade policies and UNLIMITED DATA, which is what premium iPhone customers want. The last thing AT&T needs is for Sprint to be perceived as being more iPhone friendly than AT&T.
Hopes of a mobile monopoly or oligarchy are rapidly vanishing. Right now, in terms of brand, I think the general perception is that Verizon has the best service and coverage (but higher prices), Sprint offers unlimited data and is more iPhone friendly, and T-Mobile is the rising champ of low cost/no contract. What is AT&T? They're the first ones to get rid of unlimited data. Yeah, customers loved that! So now AT&T wants to get the word out their future is to chase after T-Mobile's no contract customers and dump subsidies? (But not follow T-Mobiles Unlimited data options?) Bad messaging. Really, really bad messaging.
I suspect some of this undercover Apple bashing is an effort by AT&T to position itself as having leverage whenever it is forced to negotiate with Apple over business issues like how many iPhones they have to pre-buy, etc. Negotiations Apple always wins anyway. But whatever these beefs are between AT&T and Apple, they shouldn't be aired in public as long as iPhone customers continue to be the best customers a mobile service can have. So we'll end with another helpful Godfather quote:
"Keep your friends close, but your enemies closer." AT&T needs to stay close to Apple.
Saturday, December 7, 2013
Why AT&T Hates Apple
Remember how AT&T had to give T-Mobile three billion dollars after it's failed merger was rejected by just about everyone, but specifically the FCC? AT&T's anti-trust argument for the merger was that T-Mobile couldn't survive without them. And that by allowing the merger, AT&T would be able to lower prices. No one bought it. And now T-Mobile is thriving without AT&T's help (well, the three billion dollars was nice). It has become the fastest growing mobile carrier.
What a colossal blunder by AT&T executives. Let's pause to consider again. They gave three billion dollars to T-Mobile for… nothing. It took that money, and didn't merge, and now is competing like a monster. Bet all those AT&T execs who thought up the merger were fired. No? They're still there? Really?
And guess what, AT&T is being forced to lower prices anyway, or at least pretend to in order to complete with the company they claimed wouldn't be able to survive without them. In particular, they are being forced to offer no contract plans. (Think they would have done that if the merger had happened?) Sam Mattera reports on subject for The Motley Fool:
Will AT&T's New Plan Crush Apple's iPhone Business?
But for some reason he puts an odd spin on the subject. While admitting that AT&T is being forced to compete because of the rise of T-Mobile, somehow this is all really bad for… Apple. (Did AT&T's PR department pick up the check at lunch, Sam? Or is it just good link bait?) Bad for Apple? No, Sam. In fact, the opposite is true.
Sam's strained argument goes something like this. No one will buy an iPhone without subsidies because they are too darned expensive. So if AT&T starts offering no contract plans, people are going to buy cheapo Android phones. So Apple will go bankrupt, or something. But all is good for AT&T, because it's still the Number 2 mobile carrier. Why should it worry T-Mobile is growing fast? All AT&T needs to do is lower prices a little, or pretend to. Oh, and allow customers to avoid long term contracts. See, no problem.
The truth is, Apple wins either way, but wins even better the more AT&T is forced to compete and lower prices. People buy iPhones because they really like iPhones and they are frankly the best phones available. And they're cool.
People also figured out a long time ago that iPhone's cost more. They get it. They understand why and they are willing to pay more. In fact, some people like paying more for a cooler phone. Makes them feel cool. They like it that losers can't have that phone. Kind of cruel, but that's the way it works in a capitalistic society. Rich (or richer) people get more. They get nicer things, like the iPhone.
The whole subsidy thing was actually pushed on Apple by AT&T. Steve Jobs was uncomfortable with the idea, and didn't want iPhone's subsidized, for all the right reasons. He wanted the iPhone to be a premium product, and he was nervous about customers getting screwed by long term contracts. Of course, AT&T wanted customers to get screwed by long term contracts, and they wanted to grow market share by taking advantage of their exclusive deal on the iPhone. Jobs ultimately gave in, because he didn't have that much leverage. Verizon wasn't willing to play ball with Apple (which is another story). Jump ahead, Verizon caves in, and subsidies become the standard way to get an iPhone.
Customers understand that long term contracts are lousy, but the temptation of getting an iPhone for $199 (or less) is just too great for most people. For Apple, subsidies don't hurt, because it allows for them to make the greatest phone possible, and customers can buy it for about the same price as a marginal Android phone. So in effect, the carriers are paying for Apple's R&D. Paying a lot.
This played out very obviously with the new iPhone 5S and iPhone 5C. Analysts bitched and moaned that both phones were too expensive, but they've been selling like crazy, especially… get this, the most expensive one. Given the huge subsidies AT&T, Verizon and Sprint pay, it would be crazy for Apple to have sold them any cheaper. In fact, through various deals you can get the new iPhone 5C for free. So why would Apple lower it's price?
Given the choice between a $199 iPhone 5S or a top of the line Android, most people are going to pick the iPhone. Given the choice between a $99 iPhone 5C and a middle run Android, most people will pick the iPhone 5C. And a free iPhone or a free Android? iPhone, please.
But what happens if subsidies go away? Sam notes that in other major international markets that don't have subsidies (i.e. India and China), Apple has a much smaller share of sales. Yes, in third world countries where people simply have no money, less are willing to dish out a premium for the iPhone. (Surprisingly, a lot still do.) But this is America, where more people have an extra $200 in their bank account. It's difficult to know for sure, but I don't think anyone should assume that a majority will refuse to pay $549 for an unlocked iPhone 5C because they can get an unlocked Samsung Galaxy for $349. If that was the case, Apple's iPad business would have disappeared, since there are much, much cheaper options. People who want an Apple product are willing to pay for it. If carriers want to make the choice easier, that's helps, but there is no solid evidence Apple will lose business. They've grown their market share by being the premium product.
More importantly, subsidies aren't going away, not any time soon. So Apple has the best of both worlds. There are plenty of rich people out there who, following Steve Jobs original vision, are happy to pay $849 for an unlocked gold 64GB iPhone 5S (in fact, let's buy three) and then shop around for the best carrier with no long term contract. And there are price conscious people, who know iPhones retain their value, and that they'll save money if they pay full price up front and then get the cheapest carrier deal. And there are people for whom subsidized iPhones are just too tempting to resist. Meanwhile, while claiming not to subsidize iPhones, T-Mobile offers "loans" where someone makes a downpayment on the iPhone they want and then has monthly payments in addition to their contract fees. It's simply a subsidy by another name. Sam argues those monthly payments are higher for the iPhone than an Android, but it seems even less likely someone is going to choose a phone they don't like to save $5 a month. Don't forget, the iPhone's initial meteoric rise in sales was when it was exclusive to AT&T and easily cost over $50 a month extra in connection fees. It's already been proven that people are willing to pay more per month for an iPhone. A lot more.
If, in some imaginary universe in the future, subsidies go away completely in the United States, then it's the carriers that need to be worried. US prices for monthly cell phone service are the most expensive in the world. In a completely unsubsidized market, monthly prices would surely shrink rapidly. That's what AT&T wanted to avoid when it fought Apple tooth in nail from selling unlocked iPhones. That's why it wanted to buy up T-Mobile and stop competition. The more AT&T is forced to compete, the worse it is for AT&T, because they simply don't know how. They hate their customers too much. They are too invested in price gouging. That's why, on their sales floors, they would try to bait and switch customers who came in for the subsidized iPhones. It was common for AT&T salespeople, and Verizon, to argue like crazy to talk less informed customers into buying Android junk that had a much smaller subsidy. So the lure of Apple subsidies was often used to sell barely subsidized Androids. Some of those games disappeared when Sprint began pushing iPhone's like crazy. T-Mobile is also winning customers by being straight forward about iPhones costing more.
The more competition between carriers, the stronger Apple is because it is all about keeping customers happy, not making short term money on scams. The less money customers waste on over paying for phone service, the more they have to spend on quality Apple product. It's funny how AT&T keeps trying to say that customers have all these "choices" for their services. Customers don't want choices for cell service. They simply want it cheap. They do like choices of cool products from Apple, however. Detach iPhones from the fake "choices" AT&T offers, by losing subsidies, and AT&T has nothing to offer other than low price. It becomes the dumb pipe it's exes were always worried about. That the T-Mobile merger was supposed to prevent. It was supposed to prevent Apple from becoming too strong.
In the unlikely event that US customers become price sensitive on the hardware side, Apple could turn on a dime and start offering cheaper phones that were still delightful and fun. The plastic iPhone 5C was obviously a test in that regard. But even in a completely unsubsidized market, large numbers of people would still pay extra for high end iPhones. People with less cash are more likely to buy refurbished iPhones, and save money in monthly service fees so they can afford to buy a new one later. Since they have a hirer resale value, iPhones become cheaper than Android junk in the long run also. If customers are really forced to make all considerations based on long term value, there is even a larger case to be made for the iPhone. If you change phones every two years, you can take a chance on something new, like a pretty Android with some silly new feature like a larger screen. If people start making five year choices of phones, iPhones are a much safer bet. Apple products are known to last long. Part of the reason AT&T had to give in on offering no contract deals was because of the large number of used iPhones that still work better than the newest Androids. If AT&T didn't offer no contract service, those phones would all float to T-Mobile.
Like that three billion dollars.
What a colossal blunder by AT&T executives. Let's pause to consider again. They gave three billion dollars to T-Mobile for… nothing. It took that money, and didn't merge, and now is competing like a monster. Bet all those AT&T execs who thought up the merger were fired. No? They're still there? Really?
And guess what, AT&T is being forced to lower prices anyway, or at least pretend to in order to complete with the company they claimed wouldn't be able to survive without them. In particular, they are being forced to offer no contract plans. (Think they would have done that if the merger had happened?) Sam Mattera reports on subject for The Motley Fool:
Will AT&T's New Plan Crush Apple's iPhone Business?
But for some reason he puts an odd spin on the subject. While admitting that AT&T is being forced to compete because of the rise of T-Mobile, somehow this is all really bad for… Apple. (Did AT&T's PR department pick up the check at lunch, Sam? Or is it just good link bait?) Bad for Apple? No, Sam. In fact, the opposite is true.
Sam's strained argument goes something like this. No one will buy an iPhone without subsidies because they are too darned expensive. So if AT&T starts offering no contract plans, people are going to buy cheapo Android phones. So Apple will go bankrupt, or something. But all is good for AT&T, because it's still the Number 2 mobile carrier. Why should it worry T-Mobile is growing fast? All AT&T needs to do is lower prices a little, or pretend to. Oh, and allow customers to avoid long term contracts. See, no problem.
The truth is, Apple wins either way, but wins even better the more AT&T is forced to compete and lower prices. People buy iPhones because they really like iPhones and they are frankly the best phones available. And they're cool.
People also figured out a long time ago that iPhone's cost more. They get it. They understand why and they are willing to pay more. In fact, some people like paying more for a cooler phone. Makes them feel cool. They like it that losers can't have that phone. Kind of cruel, but that's the way it works in a capitalistic society. Rich (or richer) people get more. They get nicer things, like the iPhone.
The whole subsidy thing was actually pushed on Apple by AT&T. Steve Jobs was uncomfortable with the idea, and didn't want iPhone's subsidized, for all the right reasons. He wanted the iPhone to be a premium product, and he was nervous about customers getting screwed by long term contracts. Of course, AT&T wanted customers to get screwed by long term contracts, and they wanted to grow market share by taking advantage of their exclusive deal on the iPhone. Jobs ultimately gave in, because he didn't have that much leverage. Verizon wasn't willing to play ball with Apple (which is another story). Jump ahead, Verizon caves in, and subsidies become the standard way to get an iPhone.
Customers understand that long term contracts are lousy, but the temptation of getting an iPhone for $199 (or less) is just too great for most people. For Apple, subsidies don't hurt, because it allows for them to make the greatest phone possible, and customers can buy it for about the same price as a marginal Android phone. So in effect, the carriers are paying for Apple's R&D. Paying a lot.
This played out very obviously with the new iPhone 5S and iPhone 5C. Analysts bitched and moaned that both phones were too expensive, but they've been selling like crazy, especially… get this, the most expensive one. Given the huge subsidies AT&T, Verizon and Sprint pay, it would be crazy for Apple to have sold them any cheaper. In fact, through various deals you can get the new iPhone 5C for free. So why would Apple lower it's price?
Given the choice between a $199 iPhone 5S or a top of the line Android, most people are going to pick the iPhone. Given the choice between a $99 iPhone 5C and a middle run Android, most people will pick the iPhone 5C. And a free iPhone or a free Android? iPhone, please.
But what happens if subsidies go away? Sam notes that in other major international markets that don't have subsidies (i.e. India and China), Apple has a much smaller share of sales. Yes, in third world countries where people simply have no money, less are willing to dish out a premium for the iPhone. (Surprisingly, a lot still do.) But this is America, where more people have an extra $200 in their bank account. It's difficult to know for sure, but I don't think anyone should assume that a majority will refuse to pay $549 for an unlocked iPhone 5C because they can get an unlocked Samsung Galaxy for $349. If that was the case, Apple's iPad business would have disappeared, since there are much, much cheaper options. People who want an Apple product are willing to pay for it. If carriers want to make the choice easier, that's helps, but there is no solid evidence Apple will lose business. They've grown their market share by being the premium product.
More importantly, subsidies aren't going away, not any time soon. So Apple has the best of both worlds. There are plenty of rich people out there who, following Steve Jobs original vision, are happy to pay $849 for an unlocked gold 64GB iPhone 5S (in fact, let's buy three) and then shop around for the best carrier with no long term contract. And there are price conscious people, who know iPhones retain their value, and that they'll save money if they pay full price up front and then get the cheapest carrier deal. And there are people for whom subsidized iPhones are just too tempting to resist. Meanwhile, while claiming not to subsidize iPhones, T-Mobile offers "loans" where someone makes a downpayment on the iPhone they want and then has monthly payments in addition to their contract fees. It's simply a subsidy by another name. Sam argues those monthly payments are higher for the iPhone than an Android, but it seems even less likely someone is going to choose a phone they don't like to save $5 a month. Don't forget, the iPhone's initial meteoric rise in sales was when it was exclusive to AT&T and easily cost over $50 a month extra in connection fees. It's already been proven that people are willing to pay more per month for an iPhone. A lot more.
If, in some imaginary universe in the future, subsidies go away completely in the United States, then it's the carriers that need to be worried. US prices for monthly cell phone service are the most expensive in the world. In a completely unsubsidized market, monthly prices would surely shrink rapidly. That's what AT&T wanted to avoid when it fought Apple tooth in nail from selling unlocked iPhones. That's why it wanted to buy up T-Mobile and stop competition. The more AT&T is forced to compete, the worse it is for AT&T, because they simply don't know how. They hate their customers too much. They are too invested in price gouging. That's why, on their sales floors, they would try to bait and switch customers who came in for the subsidized iPhones. It was common for AT&T salespeople, and Verizon, to argue like crazy to talk less informed customers into buying Android junk that had a much smaller subsidy. So the lure of Apple subsidies was often used to sell barely subsidized Androids. Some of those games disappeared when Sprint began pushing iPhone's like crazy. T-Mobile is also winning customers by being straight forward about iPhones costing more.
The more competition between carriers, the stronger Apple is because it is all about keeping customers happy, not making short term money on scams. The less money customers waste on over paying for phone service, the more they have to spend on quality Apple product. It's funny how AT&T keeps trying to say that customers have all these "choices" for their services. Customers don't want choices for cell service. They simply want it cheap. They do like choices of cool products from Apple, however. Detach iPhones from the fake "choices" AT&T offers, by losing subsidies, and AT&T has nothing to offer other than low price. It becomes the dumb pipe it's exes were always worried about. That the T-Mobile merger was supposed to prevent. It was supposed to prevent Apple from becoming too strong.
In the unlikely event that US customers become price sensitive on the hardware side, Apple could turn on a dime and start offering cheaper phones that were still delightful and fun. The plastic iPhone 5C was obviously a test in that regard. But even in a completely unsubsidized market, large numbers of people would still pay extra for high end iPhones. People with less cash are more likely to buy refurbished iPhones, and save money in monthly service fees so they can afford to buy a new one later. Since they have a hirer resale value, iPhones become cheaper than Android junk in the long run also. If customers are really forced to make all considerations based on long term value, there is even a larger case to be made for the iPhone. If you change phones every two years, you can take a chance on something new, like a pretty Android with some silly new feature like a larger screen. If people start making five year choices of phones, iPhones are a much safer bet. Apple products are known to last long. Part of the reason AT&T had to give in on offering no contract deals was because of the large number of used iPhones that still work better than the newest Androids. If AT&T didn't offer no contract service, those phones would all float to T-Mobile.
Like that three billion dollars.
Sunday, July 7, 2013
ATT NEEDS EVEN MORE MONEY FROM YOU
I had to pass this one along:
ATT WANTS TO SELL YOUR DATA
I love the line: "having seemingly decided that it's been too long since everyone was mad at them." Funny because it's true.
ATT WANTS TO SELL YOUR DATA
I love the line: "having seemingly decided that it's been too long since everyone was mad at them." Funny because it's true.
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.
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