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When Data-Rich iPhone Meets Austere AT&T

By Renay San Miguel MacNewsWorld ECT News Network
Jun 8, 2010 1:59 PM PT

The new iPhone 4 may indeed be "the thinnest smartphone on the planet," as Apple CEO Steve Jobs described it Monday during his Worldwide Developers Conference keynote presentation. However, it's shaping up to be an out-of-this-world data hog -- just as AT&T, playing the role of "The Biggest Loser's" Jillian Michaels, begins weaning its customers off of all-you-can-eat data usage plans.

When Data-Rich iPhone Meets Austere AT&T

A potential customer enamored with the prospect of using their new iPhone 4 for streaming Netflix videos and uploading 720p HD videos to a Facebook page could bump up against the US$15/month, 200MB data plan recently announced by AT&T. Customers who plan on using a lot of data can opt for the 2GB, $20/month plan. Existing iPhone owners looking to upgrade can stay on the unlimited plan, but new customers now facing a wider array of Android, Blackberry and Windows Phone choices may have to start thinking more precisely about what they want to use the phone for -- and how much it will cost them.

In an soon-to-be-published report obtained by MacNewsWorld, Yankee Group analyst Carl Howe estimates that AT&T will give up about $1.3 billion in revenue with the switch to data caps, but should get some network congestion relief in return. " However, those benefits aside, AT&T just took a step back from the concept of anywhere, anytime connectivity," Howe wrote. "Rather than promoting a seamless experience where consumers don't care about whether their network connection is wired or wireless, AT&T is now making users discriminate between the two types of usage. And while this tiered pricing model may help AT&T a bit with its network congestion, it does create some ancillary damage to businesses outside AT&T. "

YouTube, Netflix, Pandora and other video/music streaming services may wind up as collateral damage, according to Howe, along with mobile advertisers and over-the-air media stores -- iTunes among them. There's also a potential impact on the development community. " Developers working new photo- and video-sharing apps such as Vringo and Qik and innovative networked mobile services such as Google Goggles now will have a tougher time convincing consumers that their apps won't blow their data plan budgets," Howe wrote. "With most apps struggling to find an audience amid 200,000 competitors to begin with, these data plans may throw cold water on today's mobile app gold rush and the venture investments behind it."

The Future of All Carrier Plans?

It's not likely that all carriers will follow AT&T's lead, Howe said, with the notable exception of Verizon. Whether they do or not, consumers are going to have to ask themselves a tough question: What good are all the innovations on a smartphone if it costs you more to use them?

"The discussion has always been, 'we want more data,'" Ben Bajarin, director of the consumer practice at Creative Strategies, told MacNewsWorld. "We're seeing consumers pull more of that data out of this 3G infrastructure. Now you have to ask yourself, should this phone be on a different network? Because AT&T seems to be saying, 'if you want to take advantage of everything on this phone, you're going to have to pay for it.'"

Bajarin is curious is see how the latest smartphones and accompanying plans will result in research on how much data the average consumer uses in a typical day. AT&T has released statistics showing that 98 percent of users don't use 2GB, and 65 percent never push beyond 200MB, but "a lot of people may overcome that if they're streaming video, and that's where it's at these days."

AT&T's move is the opening act of a brave new world for carriers facing the necessities of a tiered approach, said IDC analyst Al Hilwa. "I think the mobile apps revolution has exceeded AT&T's expectations, and they have to reset their thinking," However, it still goes against the current trend for more apps and content. "I am expecting there is going to be a big backlash from big consumers of content down the road. I don't see an easy way out of this except that the mobile phone providers may have to use interesting technologies to reduce bandwidth consumption. It definitely complicates the world for developers," Hilwa told MacNewsWorld.

The Competitive Answer

AT&T's gambit could open up a competitive advantage for other carriers and device makers. "I think it's a real opportunity for Verizon and Sprint with their Android devices," Bajarin said. "The Android devices can do a lot of those things that the iPhone 4 can. I think it's an opportunity for HTC, which has been leading the way for Android."

The new Sprint HTC Evo has a forward-facing camera, and downloadable applications like Qik allow for video editing and sharing, like the new iMovie for iPhone. "Qik is not a bundled app with Android, but maybe they should do that. It's an opportunity for Verizon and Sprint to take advantage of, but it's a short-term opportunity. It's not going to be there for long."

That's because Apple likely only has about a year left on its exclusive iPhone contract with AT&T. The big question for the last year -- will Verizon get the iPhone anytime soon? -- remains unanswered and is keeping many consumers with contracts ready to expire in decision limbo, according to 451 Group research director Chris Hazelton. So how does Verizon answer the iPhone 4's call?

"I'm curious to see what messaging Verizon will have around iPhone," Hazelton told MacNewsWorld. "They want to retain subscribers and not lose any to AT&T and iPhone 4. But [Verizon subscribers] are tired of waiting for a Verizon iPhone and they don't have any guidance. That consumer segment needs to be messaged with 'here's what Android can do.'"

Yet Verizon can't hint at an iPhone coming to its lineup too heavily, or they will cannibalize sales of HTC Incredibles and Eris' and Motorola Droids. "They've spent a lot of money on Droid marketing. They don't want that money to be wasted."

Customers who don't want their data plan finances wasted on overage may have to start thinking about the data-munching aspects of each app they download, Hazelton added. "Pandora is efficient, but other smaller developers that may have background-enabled capabilities on the iPhone may not be as careful. So you have to ask, 'who am I getting this app from, and how efficient are they?' Maybe it's a part of the ratings" that other customers provide in app store comments.

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