Dallas, we have a problem!  Bandwidth hungry customers armed with iPhones and the availability of over 200,000 apps, are straining the AT&T wireless network. The new iPhone 4 with video calling (FaceTime) and HD video recording, will only further tax the network.  Economics provides a fairly simple answer when the demand for bandwidth exceeds the supply - raise your prices.  Which of course is exactly what AT&T has done.
 

AT&T faced with imposing even more demands on their already strained network, created a pricing plan that will force the high bandwidth users to either pay for their share of network usage or look for an alternative elsewhere. AT&T chose to create a tiered pricing plan that lowered prices for most customers, but also makes users pay for bandwidth usage. They had to know that they risked creating a negative response from the market place.  In fact, you can bet the lower priced plans were offered to minimize the negative aspects of a tiered pricing plan.

AT&T claims that 10% of the users consume 50% of the bandwidth.  AT&T said 65% of its smartphone users use less than 200 MB and should save 50% of their data plan cost now. 98% use less than 2 GB and should still save $5 every month.  AT&T will now charge $25 for 2 gigabytes and $10 for each additional gigabyte.

Of course that is now.  But, how is this gong to change with the iPhone 4 shipping video over the network. Morgan Stanley estimated last year that mobile data use would be doubling each year for the next three years. More and more users could be impacted by this plan going forward.  In fact, some users may jump on the new plan to save money only to find out that in a couple of years it is costing them even more money.

There has been a lot of outrage about the move from high bandwidth consumers, along with app developers, who are concerned about the impact on high bandwidth applications.  Now users will have their application usage in the back of their mind and may change their behavior. It has also garnered the attention of the Internet press - and not in a good way.

AT&T competitors, such as Sprint who has stated they have no plans to change to a tiered pricing model, can turn this into an AT&T vulnerability and promote their unlimited plans as a differentiator.

AT&T still has the lure of the iPhone to draw in new customers, but other smartphones have become very compelling, and combined with an unlimited data plan, could lure would-be AT&T customers away.  On the other hand, the customers AT&T loses may also be the big data users who are straining their network.   Thus, not acquiring these customers helps preserve network performance for the vast majority of AT&T existing customers.

Has AT&T made a choice that will face all wireless carriers? The idea of unlimited plans and network performance in a bandwidth hungry society, just don't work together.  Has AT&T identified a structure that most of the market accepts - thus is leading the industry in a model that can accommodate very different users yet support performance demands?  Or, has it been forced to make a change that will open the door for its competition to pick up market share?

What are your thoughts?