AT&T Inc. is raising the ante once again on data pricing.
WSJ’s Greg Bensinger joins the News Hub to discuss plans by AT&T to hike data-service plan prices by as much as 33%. AP Photo: Mark Lennihan
Customers who sign up for new data-service plans starting on Sunday will pay as much as 33% more a month, part of a strategy by the company to manage 40% annual growth in wireless data and to capitalize on demand for data-hungry devices like the Apple Inc. iPhone.
The plan tiers each require new customers to pay $5 more a month, though they also will receive more data. The least expensive smartphone data plan, for instance, will jump to $20 for 300 megabytes of data—about an hour and a half of streaming video—from $15 for 200 megabytes.
Dallas-based AT&T took a risk in 2010 when it launched the industry’s first tiered data-service plans, a move that helped contribute to a slower customer acquisition pace. AT&T added 2.15 million contract customers that year, compared with 4.2 million the year before. With 712,000 new postpaid customers in last year’s first three quarters, its pace has slowed further.
The new increases again pose a risk of losing some customers in the short term to rivals with unlimited plans, such as Sprint Nextel Corp., which now offers the iPhone, or Deutsche Telekom‘s T-Mobile USA, said Kevin Smithen, a Macquarie Securities analyst. However, he said the new plans may precipitate the launch of new data-hungry devices, such as the iPad 3.
AT&T and others have argued they need to carefully manage usage on their networks in the face of a coming shortage of available wireless airwaves, known as spectrum. The carrier is on the hunt for more spectrum following its failed $39 billion bid for T-Mobile.
Since debuting the popular iPhone in 2007, AT&T has relied heavily on data to boost profits as the market for new customers dries up. Data accounted for 39% of AT&T’s revenue from wireless customers through the third quarter, up from just 20% in 2007.
There’s big money at stake in data pricing. AT&T has more than doubled average monthly data revenue per customer from $12.01 at year-end 2007 to $25.14 in last year’s third quarter. And just a year after AT&T first began tiered data-pricing plans, rival Verizon Wireless introduced its own data caps.
“It seems like they are going to just keep raising prices; and for what?” said Kamille Cooper, a 22-year-old iPhone 4 user who has maintained her $30 unlimited AT&T data plan for about 4 years. “It makes you wonder when they are going to come after the people like me.”
An AT&T spokesman defended the move as offering greater value for the price. “We think it made sense to give customers more data upfront and to give them more value,” the spokesman said. “Data usage continues to increase.”
Average monthly data use nearly doubled in just the last year, according to researcher Nielsen. Smartphone users on average downloaded 606 megabytes of music and videos and other media in last year’s third quarter, up from 338 megabytes a year earlier.
New AT&T smartphone and tablet customers needing more data will pay $30 for 3 gigabytes of data, up from $25 for 2 gigabytes currently, and $50 for 5 gigabytes, from $45 for 4 gigabytes. That compares with Verizon Wireless’s 2-gigabyte and 5-gigabyte plans for $30 and $50 per month, respectively.
Raising prices for new customers could further lower user turnover among a select few, said Robert Cross, chief executive of Revenue Analytics, which advises companies on pricing strategy.
“This certainly could help them retain customers who are worried that they’ll lose their unlimited plans [by switching to] another carrier,” Mr. Cross said.
However, AT&T risks riling its light data users who aren’t much of a drain on network capacity, said Mr. Cross.
“You have to reward customers for low use too,” he said.
Write to Greg Bensinger at firstname.lastname@example.org
Corrections & Amplifications
AT&T Inc. added 712,000 net postpaid customers in last year’s first three quarters. An earlier version of this article incorrectly reported the number as 712 million.