AT&T CEO revisits usage-based 3G pricing

AT&T (NYSE:T) CEO Randall Stephenson today reiterated the carrier’s plans to move toward more usage-based pricing in the future as AT&T seeks to rein in costs resulting from the enormous traffic surge on its 3G network.

Speaking at a Morgan Stanley conference, Stephenson didn’t lay out any specifics on what kind of tiered or metered pricing AT&T will eventually use, though he said that some form of new pricing mechanism must be put in place to ensure that those that consume the most network resources bear more of the costs.

“We will progress more toward variable pricing,” Stephenson said. “Heavier consumers will pay more than lower consumers.”

Though AT&T’s smartphone data plans use static pricing and its mobile broadband access services rely on data caps, Stephenson said AT&T is already exploring new pricing models in the emerging devices category. Pricing for eBook readers, tablets like the Apple (NASADQ:AAPL) iPad and other non-phone form-factor devices are all being launched without the traditional monthly service plan, relying on event-based pricing and even prepaid models.

Stephenson’s comments largely echoed those made by AT&T Consumer and Mobility CEO Ralph de la Vega at a UBS analyst conference last year. After outlining the phenomenal 5000% growth in data traffic AT&T had witnessed in 3 years, de la Vega said that nearly half of that traffic was being consumed by just 3% of its smartphone users.

Today, Stephenson tossed out a few more arguments to cement AT&T’s case for a change in data pricing models. He said that 50% of all mobile broadband traffic now travels on AT&T’s 3G network, and that the expensive capacity upgrades AT&T is making to the 3G network are being outpaced by AT&T’s ever-hungrier users. In many of its highest-traffic markets, such as San Francisco and New York, AT&T implemented second high-speed packet access (HSPA) carriers, only to see that capacity eaten up in less than a year. AT&T is now deploying its third and even fourth HSPA carrier in many of those markets.

Carriers are experiencing a spectrum crunch, which they can partially address by deploying more spectrally efficient technologies such as higher-capacity versions of HSPA and long-term evolution (LTE), but consumers seem to be absorbing new mobile broadband capacity as soon as it becomes available. Ultimately that means the AT&T and the industry will need access to newer and larger repositories of spectrum, Stephenson said. To that end, he applauded the FCC Chairman Julius Genachowski’s recent proposal to identify as much as 500 MHz of new wireless spectrum for mobile broadband use.

But Stephenson also said it would be a mistake to assume that every new device that lands on the AT&T network will consume data like the iPhone or a netbook. He pointed to new machine-to-machine devices that add incremental revenue while consuming almost negligible bandwidth as well as consumer devices like the Kindle that access the network only intermittently. One device that he expects to have a much lower impact on the network is surprisingly the iPad.

“It’s going to be interesting to see how people use the iPad,” Stephenson said. “We think it will be a largely WiFi driven product.” Since Apple announced the new Internet tablet, and its exclusive relationship with AT&T, the worry has been that a powerful dedicated browsing device could bring AT&T’s 3G network to its knees. But Stephenson said he finds it highly unlikely that customers will want to sign up for a second or even third data plan just to use the mobile broadband features on the iPad. Rather, AT&T believes that customers will use WiFi access primarily supplementing it with occasional access to the 3G network. That’s why AT&T has implemented a prepaid model with multiple usage tiers for the iPad, Stephenson said.