Editorial: Voice rate cuts, data rate hikes, and the case for metered billing | webOS Nation
 
 

Editorial: Voice rate cuts, data rate hikes, and the case for metered billing

by Derek Kessler Tue, 26 Jan 2010 2:01 pm EST

Overage

Both Verizon and AT&T have recently dropped the price of their unlimited voice plans from $100 to $70 a month. While we (we being the tech media) generally assumed that the price cuts were an attempt to lure more customers. We tend to forget a few days after their conference calls that the #1 and #2 US cellular networks are having no trouble picking up and retaining new customers, even with their rates considerably higher than #3 Sprint and #4 T-Mobile (T-Mobile is at least still gaining subscribers, unlike Sprint). So why the price cuts?

It’s not to reward customers, that we can guarantee. Rewarding customers is not a part of  any profit-driven corporate business model, so long as rewarding doesn’t come with some sort of trade-off. There’s clearly got to be a trade-off here, as Verizon and AT&T aren’t about to sacrifice their profits. Chris Riley, policy counsel for Free Press (a net neutrality favoring Washington-based non-profit consumer advocacy group), may have the answer: “The carriers are just trying to win political points and goodwill to use on gouging people more on data plans later. They are under a lot of scrutiny by the Federal Communications Commission, but people are still paying a lot of money for voice and data plans.”

Here’s a no-brainer: should someone who uses just 1 GB of data a month have to pay the same as another who pulls down five times that?

Higher data rates are the three most painful words ever heard by any smartphone customer. Customers are using voice less and less these days, opting for communication via text messages (which US carriers already double-charge for sending and receiving), IM, and email. Future evolutions of communication, including cellular video chat, will only serve to shift more of the communication burden onto data networks. With that in mind, it becomes clear that lowering voice plan costs and throwing in things like Mobile-to-Mobile on Sprint or Rollover Minutes on AT&T or Verizon’s Friends & Family are mostly token gestures to gain the goodwill that Riley spoke of.

The future looks bleak for the current cellular pricing structure, especially for users on the high end of the data usage spectrum. Both Verizon Wireless CEO Lowell McAdam and AT&T CEO Ralph de la Vega have admitted that given emerging usage trends among smartphone users, the current pricing structure is fair to neither subscribers nor the company. Here’s a no-brainer: should someone who uses just 1 GB of data a month have to pay the same as another who pulls down five times that? You don’t have to respond, you know that the answer is “no.”

The problem is that smartphone subscribers in the US are used the word ‘unlimited,’ even if our data plans never have been. Sprint, T-Mobile, Verizon, and AT&T all cap their so-called ‘unlimited’ data plans at 5 GB and can hit you with overage charges or worse (throttled, suspended, or canceled service) if you exceed the limit. With the revamped voice plans, Verizon and AT&T also tweaked their data overage prices, with Verizon charging $0.20 per megabyte over the limit. A subscriber that were to go 500 MB over the limit would be hit with a $100 overage charge (Verizon is charging a painful $0.50/MB for their 25 MB data plan for messaging phones).

Mobile devices are becoming better and better at consuming data, and that is not meant in the good conservative way. No, our devices are getting better at pulling down data even without our asking, with webOS being one of the chief offenders.

While adding any type of capacity to a wireless network is an expensive proposition, increasing data capacity is beyond expensive. Not only does the carrier need to put up more towers, but the ones already in place need to have new higher speed and higher capacity transmitter/receivers installed. To support that expanded aerial bandwidth the carrier also needs to increase the capacity of what’s called the ‘backhaul’ - the fiber optic lines connecting the tower to the local call center. Of all the network upgrades, this is the most expensive and problematic. And to handle the increased traffic that the thicker pipes bring the network then needs to upgrade the processing computers at the call center.

As cellular speeds continue to increase with LTE and WiMax deployments coming up, the upgrade process is only going to become more and more expensive. Mobile devices are becoming better and better at consuming data, and that is not meant in the good conservative way. No, our devices are getting better at pulling down data even without our asking, with webOS being one of the chief offenders.

The simple fact is that the current data plan structure is broken, and it is users like myself that have broken it. And while I don’t like the proposition of not having a dirt-cheap unlimited data plan, the reality of our situation is that we don’t have one now. Sure, right now it takes some significant doing to exceed the 5 GB cap with a smartphone alone, but if you use it to tether your computer or start downloading music from Amazon MP3 or watching lots of YouTube videos you’re going to exceed 5 GB before you know it.

This way the carrier can charge more to users that pull more data - and hit them hard when they’re wanting data and close to empty.

While there are many solutions to the problem, the most logical and reasonable is to move to metered data rates. That is to say, pay for the data you use. The more you use, the more you pay, simple as that. Of course, we can’t live with a system where we’re charged per megabyte like public utilities are wont to do. The solution is a tiered pricing structure coupled with overage packages. First you select your data package, something ranging from 1 GB to 5 GB, or more if the carrier is feeling generous. If you come close to exceeding that (within 500 MB), you get a text message alert warning you that exceeding your cap will require that you purchase an additional data pack at a higher rate. Once you're much closer (within 50 MB) you’ll get another warning with the option to purchase the overage pack. This way the carrier can charge more to users that pull more data - and hit them hard when they’re wanting data and close to empty - and those that don’t aren’t going to have to pay for bandwidth they’re not using and the excesses of others.

Let’s make a data pricing structure for the fictional wireless company I’m going to call AT&Sprizon-Mobile.

Up to 1 GB: $10/month ($0.01/MB)

Up to 3 GB: $20/month ($0.007/MB)

Up to 5 GB: $30/month ($0.006/MB)

Up to 10 GB: $50/month (0.005/MB)

250 MB Overage Pack: $5 ($0.02/MB)

Most subscribers will think little of paying an extra $5 to keep their data service going, especially if they’re more than a few days from the end of their billing period.

With this plan customers would pay no more than they are now, though AT&Sprizon-Mobile could stand to reap the benefits of frugal customers opting for the 1 GB plan and grossly exceeding their data usage. If the hypothetical subscriber on the hypothetical plan were to use just 1.8 GB in a month (that’s four extra overage packs), AT&Sprizon-Mobile will pull in the $30 that the 5 GB plan would have netted.

Additionally, if the carrier wants to pull in even more money, they’ll make tethering both free and easy. While more subscribers hooking up more computers through their phones means more data being pushed through the pipes, it also means that customers will be exceeding their limit and being strong-armed into buying overage packs earlier and more often.

Could this put the hurt into some subscriber’s wallets? Yes, it very well could, but it will also reward those that aren’t straining the network’s capacity. And it will also give the carriers the cash they need to continue churning out higher profits while improving the network infrastructure.