The iPhone 4 was unveiled yesterday and already 1.9 billion comments about it have been published in cyberspace. The more interesting news, from the perspective of an industry observer is AT&T's far less-heralded - a mere 215 million hits - data plan change. Namely: no more unlimited data.
The reality is that nobody stays in business selling something for less than it costs -- despite the self-indulgent fantasies of dot-com startups. And in the brave new always-connected world, devices (other than Apple products) to connect may be dirt cheap, but the infrastructure that makes it all work is anything but. AT&T isn't the first carrier to observe that more is less when it comes to iPhone profits. As smartphone subscribers eat up rich media and interactive content, operational costs grow faster than ARPU.
Selling the iPhone hurt Southeast Asian carrier SingTel's operating margin by about 4%, the company told Reuters a year ago. Scandinavian carrier TeliaSonera reported a 20% decline in Danish ARPU (average revenue per user) in the two years since introducing the iPhone -- from US$38.35 to US$30.39 - according to the same report.
AT&T's move points to the future. Once upon a time, minutes were a relevant measure of telecommunications infrastructure cost. When minutes became irrelevant, that didn't mean that the infrastructure was free. Today bandwidth is the meaningful measure of infrastructure cost and average profitability per user (APPU) is more important than ARPU. The pricing model will change simply because businesses that can't sell their services at a profit won't be in business to offer high quality all-you-eat data plans.
And that will have another impact. When network operators' returns match investment, the infrastructure business - the pipe - is going to be a lot more attractive. Which, no doubt, is part of the reasoning behind Google's 1-Gbps FTTH network "experiment" that the Internet giant announced last February. Certainly, Google stands to benefit from increased use of its Web-based applications, ad revenue from the new network, and control of the underlying delivery infrastructure.
But the bottom line is that Google sees a business opportunity in becoming a traditional telecommunications company. And why not? One of the greatest beneficiaries of VoIP disruption of voice communications business was Comcast Cable - now the 3rd largest US telephone company.
For more analysis of AT&T's new pricing, read media sociologist Shelly Palmer's June 6 post, Understanding AT&T's New Limited Data Plan.