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Mobile data pricing: You can't have it every way

Sprint is taking heat for its new $10 smartphone fee; AT&T gets slammed for tiered plans; everyone is vilified for data caps. Whatís left?

Sprint (NYSE:S) is getting some flak for its new $10 smartphone data fee applied to any device with a legitimate OS running across its numerous networks. The criticism is mild compared to what AT&T (NYSE:T) faced when it overhauled its pricing structure to eliminate unlimited data. In fact, most of the stories have pointed out that even with the fee, Sprint still has some of the cheapest overall data plans in the market. But there have still been occasional mentions of an ďInternet taxĒ and hidden fees emerging from the blogosphere, which frankly puzzles me a bit.

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Yes, Sprint is raising the price of data plans and is targeting smartphones in particular as data usage increases on those devices. But the alternative would be to do away with unlimited plans entirely. As you may recall, AT&T did just that last year and pissed a lot of people off in the process. Basically there are three ways operators can charge for mobile data:

A) Device-based unlimited plans in which price is determined by the average consumption over that category of device. Devices that typically consume more data, such as tablets are smartphones have higher rates than those that donít.

B) Use-based plans in which customers are charged different rates depending on what types of services they use. Applications that use more data such as video incur higher or additional charges.

C) Metered plans in which customers pay for the megabytes or gigabytes consumed.

There are a lot of emerging technologies and policies that can augment these kinds of plans, such as time-of-day or congestion pricing, but I wonít go into that now. Letís just say these are the three basic choices, and nobody seems to like any of them (most people like option A, but not when carriers start raising prices).

Letís break them down.

In option A, economics would seem to be moving in the wrong direction. As data becomes more popular and networks become more efficient, prices should fall as it becomes cheaper for operators to deliver that data. Thatís true. The cost of delivering a bit of data has fallen dramatically in the last couple of years as operators have deployed high-speed packet access (HSPA), WiMax and long-term evolution (LTE) networks (that is once you discount the enormous capital costs of building those networks). But the smartphone has also driven an enormous data explosionóaverage data use has increased exponentially. Itís a sliding scale: Consumers consumption is outpacing the technology. By that logic, smartphone unlimited plans will continue to increase in price as long as average data consumption continues to rise dramatically.

Just by mentioning Option B, Iím probably generating howls of protest. MetroPCS (NYSE:PCS) is already being raked over the coals by consumer advocacy groups for violating the spirit of Net Neutrality. MetroPCS introduced tiered service plans based on types of applications used on its new LTE networkówhat it boils down to is streaming audio and video beyond YouTube costs extra. The Free Press pointed out that customers would have to pay extra to access Skype, Netflix and any number of applications they could access free on the Open Web (never mind that Metroís BREW-based phone doesnít support Skpye or Netflix apps).

Oddly, Verizon Wireless (NYSE:VZ, NYSE:VOD) hasnít faced the same criticism though it has a similar policy in place. It charges a $10 monthly video on demand fee for some of its smartphone applications like NFL Mobile. Verizon would probably argue that it is billing specifically for content rather than charging extra for bandwidth to support a specific type of application, but the economics work the same way. Customers who stream video (particularly those that stream whole NFL games) consume a lot more data than those that are merely surfing the Web, so operators are looking for ways to charge those customers more. From the consumerís perspective, not cool.

And finally there are the tiered or meter pricing plans, which would appear to be the most egalitarian plans of them. Admittedly the tiers operators are offering could be a bit more balanced (why does 200 MB cost only half as much 2 GB?), but the principle is sound. You pay for what you use. If youíre a light user you donít get punished with an unlimited rate designed to take into account the highest-volume consumers. If you go over your allotment youíre charged a metered rate by the GB rather than a punitive overage fee. But everybody hates these plans.

Weíre living in an unlimited or bust world. Thatís fine, but when people start complaining about rising unlimited plan rates, itís hard to be sympathetic.

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© 2014 Penton Media Inc.

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