iPhone 4: Now with Price Gouging! (Courtesy of AT&T)

Yay, the iPhone 4 is here. But today, instead of thinking about the latest version of the game-changing smartphone, I'm mourning the end of the era of the unlimited data plan.

Last week AT&T announced a new tiered pricing model for data services for Apple's iPhone and iPad devices, which charges users $15 for 200 MB of data and $25 for 2 GB, plus an additional charge for tethering (more on that in a bit). While some think the new model will ultimately be good for consumers, others disagree. David Pogue, while having issues about the tethering, thinks the scheme is a "very delicate balancing act that benefits almost everyone, customers and AT&T alike."

We — like many others — respectfully disagree.

AT&T's argument for its new scheme is that while 98 percent of iPhone users use 2GB or less of data a month, the consumption of the remaining 2 percent is buckling its network. So with the launch of the iPhone 4, the 98 percent of folks who are just average data users can now choose cheaper plans, based on their level of usage, and save some money while they're at it. So what's not to like?

As it turns out, there's more than you'd think. Free Press' Chris Riley has already pointed out that beneath the appearance of lower prices lies the gouging of consumers and the stifling of innovation.

Here's how AT&T's plan really works:

  • Punitive overage charges. The “DataPlus” plan offers 200 MB of data for $15 a month. If you go over this amount — easily possible if you stream a lot of music and video — you'll be charged another $15 per additional 200 MB. The “DataPro” plan offers 2GB of data for $25 month, with a $10 charge for each additional GB. Although AT&T will refuse to provide cost information unless legally ordered to do so, $10 per GB is almost certainly more than it costs AT&T to provide the service — and $75 per GB is highway robbery.
  • Only the beginning of mobile broadband. Maybe $10 per GB sounds reasonable to you, but remember that mobile broadband is still in its early stages. The fact is, today's heavy users will be tomorrow's average user. 
Just today, Steve Jobs announced that the iPhone 4 will include a Netflix app. That's pretty cool, except for the part about streaming online video, which quickly uses up a lot of bandwidth. New iPhone users with a $15 a month plan should get ready to for some serious overage charges to stream The Blind Side. That's right, a two-hour movie would use more than 200 MB in data, blowing a DataPlus user's data allotment in one viewing.

    And to top it off, Cisco estimates that an average mobile user will consume 7 GB of data by 2014. For that, a "DataPlus” user would be charged $305 a month, and a "DataPro" user would owe $75. AT&T's pricing scheme will punish new smart phone owners just as they're getting up to speed with the mobile Web. 


  • Greedy tethering. For an extra $20 a month, iPhone users in the U.S. can finally tether their phones' data plans to their laptops (many smartphone users can do this already, at no additional fee). Of course, the data used by the laptop will come out of the same bucket as the data for the iPhone, making it much easier to go over your 200 MB or 2 GB of monthly data. As David Pogue put it, charging $20 a month for no extra data "seems a little greedy," especially when AT&T is already charging for the extra data usage. That's an understatement. We call it blatant price gouging.
  • Killing innovation. Not only does this overcharging break the bank, it's an incredible disincentive to using data-heavy applications like Netflix and Pandora, not to mention whatever new applications will exist in four years. How will the next wave of mobile entrepreneurs produce innovative apps, with customers constantly looking over their shoulders at overage charges? (GigaOM's Stacey Higginbotham has more on this).

It's likely that Verizon will follow AT&T's lead and introduce its own tiered scheme soon enough (though some suggest that Sprint and T-Mobile, which are both losing subscribers, have bandwidth to spare so they will likely keep their unlimited plans). If Verizon does go that route, metering by the two largest mobile carriers would all but ensure that wireless broadband never becomes a true competitor to wireline broadband, and that broadband users continue to pay Verizon and AT&T double — once for Verizon FiOS or AT&T U-Verse, and again for Verizon or AT&T wireless.

As we continue to see explosive growth and innovation in the world of devices and applications —think how mind-bending the iPhone 4 or the HTC Incredible would have seemed to consumers just a few years ago — the future of wireless broadband service is grim.

People + Policy

= Positive Change for the Public Good

people + policy = Positive Change for the Public Good