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AT&T exploring usage-based mobile data pricing

Mobility CEO Ralph de la Vega says AT&T is educating customers on data consumption patterns in preparation for possible future pricing models

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AT&T (NYSE:T) Mobility and Consumer Markets CEO Ralph de la Vega today said the company is taking the initial steps toward a possible usage-based data pricing scheme over its 3G and future 4G networks. With 3% of smartphone users generating 40% of all data traffic on the AT&T high-speed access network, AT&T needs to prevent a minority of customers from consuming a majority of the network’s resources. Charging by the megabyte isn’t the immediate answer, de la Vega said, but in the short term, AT&T is trying to educate customers on their data consumption in hopes of easing the transition to a usage-based model in the future.

“We’ve got to get them to understand what represents a megabyte of data,” de la Vega said speaking at a UBS analyst conference in New York. “So what we’re doing right now is improving all of our systems so we can begin to give customers real-time information about their data usage and begin to get customers educated. I think longer term there’s got to be some sort of a pricing scheme that addresses the usage, but that’s going to be determined by industry competitive factors, regulatory factors and customer acceptance.”
De la Vega said that he could offer no predictions on when that date might be, though he indicated he was hardly being cagey. Factors like net neutrality and other regulatory initiatives as well as the actions of its key competitors are completely out of AT&T’s control. Those actions could prod adoption of usage-based pricing across the industry sooner rather than later or delay its adoption indefinitely, de la Vega said.

If per-megabyte billing isn’t in the immediate offing, there are other policies AT&T can implement to constrain high-volume users, though he was short on specifics. “I’m not going to give you in detail what we’re going to do,” de la Vega said. “We’re going to try to focus on making sure we give incentives to those small percentages to either reduce or modify their usage so they don’t crowd out the other customers in those same cell sites.”

The biggest obstacle by far is the lack of consumer awareness on their data consumption, de la Vega said. In focus groups, AT&T found that most consumers thought e-mail produced the highest data volumes because they used it so often, while intensive broadband services like video consumed little because they accessed it so little, while in truth a short video streaming session blows a day’s worth of BlackBerry e-mail out of the water. There is some hope, though, de la Vega pointed out. In a consumer trial performed with wireline consumer broadband, AT&T found the same lack of awareness about how much and what kind of data households were consuming. Once AT&T gave those households detailed explanations on their consumption patterns, though, they immediately reined in their overall usage and lowered their bills, de la Vega said.

De la Vega also addressed AT&T’s 3G capacity and coverage problems in the keynote, saying AT&T is not only aware of those issues in certain key markets but is actively addressing them. He said AT&T’s conversion of high-propagation 850 MHz cellular spectrum from 2G to 3G is almost complete, and in many of its major markets, AT&T has seen instant coverage improvements with signals penetrating through walls, into the upper floors of high-rises and even basements—all areas largely unreachable when HSPA transmitted solely on the PCS 1900 MHz frequencies. De la Vega identified New York and San Francisco as problem areas—not coincidentally two of the densest and highest smartphone penetration markets in the country—though for different reasons.

In a network performance study, independent data collection company Root Wireless found that AT&T actually had a very powerful 3G network in New York, beating out the other big three in average download and upload speeds and delivering an almost full-strength signal to higher percentage of the city than any other operator but Sprint (NYSE:S). But de la Vega said that the 1900 MHz HSPA network had big problems penetrating the concrete and steel canyons of Manhattan, which may explain while those results weren’t evident in Root’s data. Ironically once 850 MHz HSPA was turned on, AT&T faced a different issue—one of capacity. With millions of workers and residents suddenly gaining better quality access to the 3G network in their homes and workplaces, AT&T’s backhaul network wasn’t able to keep up. AT&T is now in the process of upgrading its backhaul links, supplementing copper infrastructure with fiber and Ethernet. De la Vega said New Yorkers will begin to notice sizable improvements in capacity as well as coverage. “In New York right now, I think we’ve turned a corner,” de la Vega said.

In San Francisco, AT&T faces a problem in upgrading its existing 2G cell sites, many of which are built as microcells that can’t support new 3G base stations. In the process AT&T is facing zoning and permit roadblocks, which is delaying the rollout. According to Root’s data, AT&T’s coverage is much poorer in San Francisco than in its other major markets, with nearly 50% of its footprint in the Bay Area receiving a half-strength signal or worse. But where customers can find multiple bars, they’re also getting better data speeds, according to Root: AT&T is averaging 359 kb/s on the downlink 100 kb/s higher than its arch-competitor Verizon Wireless (NYSE:VZ, NYSE:VOD). While VZW has been attacking AT&T relentlessly in TV ads for its lack of nationwide 3Gcoverage, claiming its network is five-times larger geographically, Root’s data found that in many major metro markets AT&T’s network is faster and more extensive.

Though acknowledging AT&T’s problems, de la Vega in general defended AT&T’s overall network, pointing out that its data traffic had increased exponentially since the launch of the Apple (NASDAQ:AAPL) iPhone, yet AT&T has still managed to maintain coverage and capacity in most of its markets. He said AT&T is bringing 2000 new 3G cell sites on line and is adding the equivalent of 100,000 T1 circuits to its backhaul network, many in the form of fiber Ethernet connections. AT&T is also in the process of upgrading the existing 3G network to 7.2 Mb/s HSPA, which will double capacity available over each base station.

De la Vega also pointed to several network performance studies, including Root’s, that concluded that AT&T’s 3G network outperformed Verizon’s in many performance categories. “The data showed AT&T’s 3G network outpaced Verizon’s, producing far fewer peaks and valleys in network capacity and much greater data speeds,” de la Vega said. “While there is more to be done including in places like Manhattan and San Francisco, I want to assure you we have a high sense of urgency and that we’re on the right track.”

While AT&T may have performance metrics on its side, it can’t shake its perception problems. AT&T ranks far lower than Verizon in consumer surveys such as those from Consumer Reports and J.D. Power, mainly due to consumer frustration with lack of 3G coverage, either real or perceived. Its lack of nationwide coverage has also been a public relations problem that Verizon has capitalized on, showing a map of AT&T’s network with massive coverage gaps in between the major metro markets. Though the geographic gaps are large, AT&T still manages to cover 75% of the US population by sticking to the cities.

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© 2014 Penton Media Inc.

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