AT&T to face down net neutrality with per-megabyte pricing

By Tammy Parker

AT&T Mobility’s consideration of usage-based pricing for its mobile broadband network lays the groundwork for billing changes that could be induced if regulators force it to comply with any net-neutrality rules.

AT&T Mobility and Consumer Markets CEO Ralph de la Vega, appearing at a financial analyst conference in New York, said last week that while the operator has no immediate plans to begin charging by the megabyte it does intend to upgrade its billing systems so it can start educating its customers regarding their data usage by providing real-time information about their data consumption. That, he indicated, might open the way toward usage-based pricing.

“We’ve got to get them to understand what represents a megabyte of data,” de la Vega said. He reportedly acknowledged at the event that just 3 per cent of users drive 40 per cent of the data traffic delivered over AT&T’s mobile network.

De la Vega’s comments immediately found skeptics, who contend AT&T is pondering a bait-and-switch campaign. From their perspective, AT&T used unlimited data plans to lure mobile customers to smartphones, promoted high-bandwidth applications over a 3G network that’s unable to accommodate them and now intends to jack up its prices by charging per megabyte used.

AT&T’s Smartphone Personal package offers unlimited data for $30 per month when combined with a separate qualified voice plan.

Critics of AT&T further contend that any shift toward usage-based pricing will represent nothing more than a form of evasion on AT&T’s part. They charge that the operator would prefer to change its pricing in order to get people to use less data rather adding much-needed improvements to its 3G network, such as HSPA+, which AT&T has said it will skip in favor of moving directly to LTE.

Yet AT&T actually appears to be tackling, rather than evading, its capacity and coverage issues. Not only is it bringing online 2,000 new 3G base stations, but it is also deploying 3G in the 850MHz spectrum that used to be dedicated to TDMA, enabling improved 3G signal penetration inside of buildings beyond what was possible when it used only 1.9GHz spectrum. Further, AT&T is improving its backhaul networks by adding fiber and Ethernet to supplement its old copper infrastructure, which will give the operator the equivalent of 100,000 new T1 circuits. Although the operator says it will skip HSPA+, it is currently deploying 7.2Mbps HSPA in order to double network capacity.

Those improvements will all help AT&T better manage its mobile traffic. Yet I predict there will be more talk of usage-based billing from AT&T as well as other mobile operators, particularly if Net neutrality is forced upon them. In late October, the US Federal Communications Commission voted 5-0 to begin a rulemaking process to codify Net-neutrality principles and apply them to wireless – as well as wired –broadband networks.

AT&T has been one of net neutrality’s most-vocal opponents, so a shift toward usage-based billing fits right in with the company’s perspective. Net-neutrality opponents such as AT&T generally contend that the application of strict net-neutrality rules to mobile networks would ultimately disrupt operators’ existing business models, casting them into the dumb-pipe realm they have for years tried to avoid. In a worse-case net-neutrality scenario, investments that mobile operators have made in their networks would be broadly leveraged by non-facilities-based Internet companies while the network operators themselves would struggle to keep their networks up and running with no way, other than usage-based pricing, to manage crushing amounts of data traffic.

AT&T’s mobile network is already utterly overwhelmed by iPhone users in major metropolitan areas such as New York and San Francisco, and the situation promises to get worse as more mobile users buy smartphones and learn about all of the scintillating internet-based capabilities inherent in the devices. Add net neutrality to that already explosive situation, and AT&T’s network, as well as those of other mobile operators, might be faced with a traffic-induced standstill.

In fact, de la Vega cited net neutrality and other regulatory initiatives as factors that could force a harder look at usage-based pricing. His latest remarks reflected comments he made two months ago during the CTIA Wireless IT & Entertainment 2009 conference in San Diego. At that time de la Vega did not discuss pricing, but he did observe that net-neutrality rules would enable bandwidth hogs to “crowd out the many” on AT&T’s 3G data networks

While AT&T is eyeing per-megabyte pricing as a way to mitigate the impact of data traffic on its mobile network, the operator is not wholeheartedly committed to the concept. During his recent appearance in New York, de la Vega acknowledged that AT&T’s adoption of usage-based pricing might be delayed indefinitely depending upon competitive factors as well as which way the political winds blow in Washington.