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Understanding new cell phone data plans

Here's what smart-phone owners on AT&T and other networks need to consider.

By Karen Datko Jun 4, 2010 2:33PM

This Deal of the Day comes from Kelli B. Grant at partner site SmartMoney.

 

AT&T's decision to eliminate unlimited-data plans is one that will impact all smart-phone users, no matter which carrier they currently use.

AT&T announced Wednesday that starting Monday, June 7, it would stop offering the $30 unlimited-data plan to new customers, instead offering cell phone and iPad owners a monthly subscription choice of $15 for 200 megabytes or $25 for two gigabytes. Those who opt for the more expensive plan can choose to pay an additional $20 monthly to use their phone as a modem for portable computers.

 

Customers who currently subscribe to an unlimited-data plan can keep it "indefinitely," even if they switch phones, the company said. (Once users switch out of the unlimited plan, however, there's no going back.)

 

"This has been a long time coming," says Michael Gartenberg, a partner at technology consulting firm Altimeter Group in San Mateo, Calif. AT&T has blamed soaring data usage for dropped calls and other network problems, saying 3% of smart-phone users account for 40% of its data traffic. In December, Ralph de la Vega, chief executive of AT&T Mobility, told investors that usage-based pricing was likely. Spokesman Mark Siegel says the new plans are more fair to the bulk of subscribers. "We came to the conclusion that the one-price-fits-all model wasn't working," he says. The company expects that the lower data point could also entice more consumers to choose a smart phone for their next handset.

 

Other carriers are likely to move to similar pricing buckets as smart phones become more dominant in the market. Carriers offering faster 3G and now 4G connections need to be able to fulfill that data promise to subscribers, but the expense of building the network makes it improbable to continue offering low-priced all-you-can-eat plans, says Manish Rathi, a co-founder of Retrevo.com, which offers user manuals and consumer reviews.

 

"We're at the point where most people's next phone is going to be a smart phone if they don't have one already," he says. "AT&T is responding to a wider trend, although they've seen more [data consumption] with iPhone usage."

 

Spokespeople for Sprint and T-Mobile said they continue to assess pricing options, but declined to provide details on future plans. Verizon Wireless did not respond to requests for comment, although last month Verizon Wireless CEO Lowell McAdam told investors at a Barclays Capital conference that he hopes to move to a bucket-pricing plan for its 4G network in 2011. AT&T did not respond immediately for comment.

 

Here's what smart-phone owners on AT&T and other networks need to consider:

 

Light users save cash. With the much-hyped iPhone, it's easy to forget that AT&T does offer other smart phones -- and that not every user is a data hog, Gartenberg says. AT&T statistics show that only 2% of its smart-phone users consume more than two gigabytes per month. Of the rest, 65% use less than 200 megabytes per month. Switching to the new plan would save them $15 a month in data charges, or $180 annually. Heavier data users still below the two-gigabyte cap would save $5 a month. Subscribers can check their data usage history through their online accounts.

 

Next iPhone could change the game. AT&T's new pricing takes effect on the same day Apple is expected to announce a new version of the iPhone. Users currently on the carrier's unlimited-data plan should hold off on making the decision to switch plans until they see the new features, says Ross Rubin, executive director of industry analysis for market researcher NPD Group. For example, a rumored front-facing camera would allow data-heavy video conferencing.

 

Apple has said the update will allow multitasking. "Now you can do things like stream Pandora in the background," Rubin says. Running multiple apps at the same time could exponentially increase data usage.

 

Apps increasingly require more data. The latest apps are trending toward video and other media-rich content -- which consume more data than checking your e-mail or surfing the Web, says Brad Spirrison, the managing editor for review site Appolicious.com. "What seems like a reasonable amount of data for a plan now may not be six months down the line," he says.

 

Worry less about "bill shock." Amid Federal Communications Commission investigations of wireless overage charges, AT&T said it will alert subscribers when their data usage approaches 65%, 90% and 100% of their plan limits. "That's great for cell phone users," says Sally Greenberg, executive director of the National Consumer League, an advocacy group. Consumers who do go over are bumped into another bundle ($15 for another 200 megabytes for those on the cheaper plan, $10 for another gigabyte for those on the more expensive plan). Consumers can also call and retroactively switch plans for the month, she says.

Unlimited plans may be point of competition. Expect carriers still offering unlimited-data plans to leverage that as incentive for families, businesspeople and other data-heavy users to switch, Rathi says. Sprint, for example, charges $70 a month for a plan with 450 minutes and unlimited messaging and data, for example. AT&T's new plans would cost $75 for 450 minutes, unlimited texting and 200 megabytes of data, or $85 for two gigabytes. Sprint will tack on a $10 monthly surcharge for 4G phones (the first of which debuts today), but that still prices it competitively for users who want more than two gigabytes per month, Rubin says.

 

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