At AT&T Inc. at least, the era of "unlimited" seems to be over.
The second largest wireless company in the United States, reeling from network congestion issues and ahead of the new iPhone launch, announced on Wednesday that it is introducing capped, cheaper data plans for smart phones, a step away from the unlimited data packages that have led to network congestion in dense urban areas.
The move, which analysts called "significant," may squeeze AT&T's wireless profit margins by lowering the monthly bill smart phone customers pay for wireless data, which is used for sending e-mails, Web-browsing and streaming video, as opposed to voice plans which are used for talking.
However, the move may also increase the amount of lucrative smart phone users on AT&T's network, which already has a greater percentage of smart phone users than its chief rival, Verizon Communications Inc. Because AT&T is introducing cheaper plans - $15 for 200 megabytes of data and $25 for two gigabytes, as opposed to the current $30 unlimited data plan - the monthly bill for smart phones has just come down, potentially removing barriers for consumers who were unwilling to pay $30 for a data plan in addition to what they pay for voice service.
New smart phone customers will be unable to get unlimited data plans, though users who already have such plans can keep them. The company is also phasing out its unlimited data plan for Apple Inc.'s iPad, which is expected - along with other tablet computers - to chew through wireless data much faster, given it has a larger screen and is more suited for data-intensive use, such as video streaming.
Greg MacDonald, an analyst with National Bank Financial Inc. in Toronto, said this may create a more "sustainable" pattern for smart phone growth at AT&T. But Mr. MacDonald noted in a research note on Wednesday that the market is likely to interpret this as he does, as a "price decrease" for a core service with a huge base of customers that will hurt margins.
Analysts praised the move on Wednesday, even as they wondered what it meant for the industry as a whole, including AT&T's rivals in the U.S. and Canadians wireless carriers, such as BCE Inc.'s Bell Mobility and Telus Corp., which continue to price wireless data higher than U.S. companies in the face of new competition.
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Dvai Ghose, a telecom analyst with Canaccord Genuity, compared AT&T's data pricing to that of Bell, Telus and Rogers Communications Inc. and found that in some cases it was four times higher for less product. For $15, the price of AT&T's 200 megabyte plan, Canada's Big Three wireless companies only offer 50 megabytes of data or limit users to only social network sites, Mr. Ghose said in a research note.
"Given 1) increasing discontent from the Canadian government and consumers regarding high priced wireless data in Canada versus the U.S. and 2) the introduction of wireless new entrants in Canada including (cable companies), we wonder if Canadian wireless carriers can continue to charge a 4x premium over AT&T Wireless," Mr. Ghose wrote.
Telus spokesperson Jim Johannsson said the company has data plans that are competitive with AT&T's, and which are, in some cases, cheaper.
"The real trend that is happening here is that the bigger carriers around the world are realizing that unlimited plans don't work," Mr. Johannsson said. "And we believe consumers would rather have a fixed plan on a high quality network with a good experience, rather than an unlimited plan on a crappy overloaded network."
American wireless companies have, for some time, attempted to get rid of flat-rate, unlimited data plans, because they put an artificial cap on the amount of revenue generated by consumers. Verizon's chief technical officer has, in the past, indicated that he would like to see buffet-style pricing eliminated. These types of plans also lead to network congestion, where a small percentage of customers use so much data that they actually harm the quality of other customers' service, leading to dropped and missed calls and slow data service. For AT&T the problem has been particularly acute given it offers the iPhone exclusively, a device that eats up as much as seven times more data than a regular cellphone.
The move towards capped plans, Mr. MacDonald notes, "is very important for AT&T given its network capacity constraints." But bloggers, such as Jeff Jarvis of New York University's graduate school of journalism, were quick to criticize the move, calling it "retrograde" and comparing it to when AT&T began capping use on the Internet from regular computers.
In Canada, flat-rate pricing for data is just beginning to arrive and companies are only now seeing how the Canadian market is reacting. Last December, new wireless player Wind Mobile launched in Toronto with an unlimited data plan priced aggressively at $35. In a recent interview company chairman Anthony Lacavera said users have been "just pounding it," in terms of data-usage. But in order to reach more consumers, the company has still introduced cheaper price points for less data, as AT&T is now doing.
In mid-May, Mobilicity also launched in Toronto with unlimited data, adding more pressure for Canadian carriers to begin offering unlimited plans - ironically, just as U.S. carriers seem to be abandoning them.
AT&T's change to the wireless data service it offers for the iPad may also be significant, perhaps symbolizing either that people were staying away from the service because it was two expensive; or that unlimited usage was damaging network quality for other users.