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AT&T subs holding on to their unlimited plans -- but change is coming

AT&T has managed to move millions of smartphone customers onto usage-based plans, but 19 million 'grandfathered' unlimited holdovers remain. With throttling for its very heaviest users poised to go into effect in October, those unlimited stragglers face a decision.

Starting in October, AT&T will start throttling speeds to its heaviest smartphone data users still using unlimited data plans, cutting back their download speeds after the reach an unspecified threshold. Since AT&T introduced usage-based pricing last year, it’s been gradually shifting smartphone customers to tiered plans, but AT&T grandfathered all of its previous unlimited customers under the new policy, allowing them to keep their restriction-less plans even if they signed new contracts or upgraded handsets.

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With throttling, obviously those days of unfettered access are over, though only the top 5% of heaviest users will feel the effects of the new policy. It’s worth examining, though, just how many AT&T customers will see any difference.

In the year since AT&T introduced its usage-based data pricing models, 15 million customers have signed up for a pay-by-the-gigabyte plan. But an even greater number have held onto their old unlimited plans, paying an additional $5 a month for no monthly restrictions on their smartphones. According to AT&T, 50% of its 68.4 million postpaid customers have smartphones. Subtract from those 34 million the 15 million customers that either switched to a tiered plan or signed up after June 7, 2010 (when the new tiers went into effect), and you’re left with more than 19 million subscribers still on an unlimited plan.

AT&T had 67 million postpaid subscribers at the end of the June, 2010. Of those, 36%, or 24.1 million, were smartphone customers. Given that the new tiered data plans had been in effect for less than a month, we can assume nearly every single of those customers was on an unlimited plan. So in the space of a year AT&T has converted 5 million customers from unlimited plans to the new tiered plans.

Some of that was probably done through attrition. Assuming AT&T postpaid quarterly churn rates apply equally to its smartphone customers, it had lost about 4% or 5% of those customers to other carriers. That’s about 1 million to 1.2 million customers that were replaced by new subscribers who had no choice but to sign up for a metered data plan. That leaves us with a little less than 4 million subscribers, about 17%, who have chosen to discard their unlimited privileges in favor of a cheaper, although, restricted data plan.

Four million isn’t a bad number, but it hardly signals a mass exodus from unlimited to usage-based pricing models. Though only a small percentage of customers actually go over the 2 GB limit before paying additional tonnage, the majority of subscribers still seem to like the safety net of having a no-restrictions plan in place. The allure of “unlimited” is still strong, though it has ceased to be financially practical for the majority of subscribers. And that’s probably why AT&T is choosing to throttle the top 5% of its users by data volume rather than throttle after a pre-determined cap like some of its competitors (such as its acquisition target, T-Mobile).

By defining a specific cap, AT&T would essentially be introducing another tier into its pricing plans, which would defeat the purpose of a supposedly unlimited plan. AT&T wants to keep that unlimited allure intact, while reserving the right to judge if that privilege is being abused. Think of it like an unlimited speed limit law: You can drive as fast as you want, but if a state trooper finds your speed to be reckless he can still ticket you. AT&T explained its policy further in a statement:

Typically what puts someone in the top 5 percent is streaming very large amounts of video and music daily over the wireless network, not Wi-Fi. Streaming video apps, remote web camera apps, sending large data files (like video) and some online gaming are examples of applications that can use data quickly. … The bottom line is our customers have options. They can choose to stay on their unlimited plans and use unlimited amounts of data, but may experience reduced speeds at some point if they are an extraordinarily heavy data user. If speed is more important, they may wish to switch to a tiered usage plan, where customers can pay for more data if they need it and will not see reduced speeds.

AT&T is still a bit vague on how the policy will be implemented, such as whether it will be based on historic usage patterns or on the data trends of a particular month. It acknowledges that the data usage of its top 5% varies month to month, which means the threshold for triggering throttling will vary month to month. And once throttling is implemented, the average data consumption of its top 5% should drop considerably as they’re forced to contend with slower speeds for part of their billing cycles. If the top 5% of users consumed an average of 10 GB of data in September, throttling may force them to cut their usage by a gigabyte or two in October. Then the 9 GB user, who would have been 91-to-95% percentile and experienced no restrictions in service in October, is suddenly elevated into the top 5%, where he is subject to throttling, forcing down his consumption and so forth.

AT&T has another quarter before the throttling policy goes into effect. Assuming it losses another 200,000 smartphone subscribers to the competition and brings another 1 million to the light of usage-based pricing, it will have a little less than 18 million subs still on unlimited plans. That puts about 900,000 in the top 5%. The problem is those customers aren’t likely to stick around if they’re consistently finding their speeds cut. They’ll move to tiered plans or leave AT&T entirely to find one of the few remaining operators that doesn’t restrict smartphone usage (basically Sprint). The cycle would then start anew as new a set of subscribers replaces those that fled in the top percentile.

You can see where this goes. At some point AT&T either drives down usage levels among its heaviest users to levels it deems acceptable, after which it relaxes its throttling policy, or it continues to drive down usage rates ad infinitum, until it forces all of its customers into tiered plans. Either way AT&T gets what it wants: a better-behaved base of ‘unlimited’ users or the elimination of unlimited entirely.

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© 2014 Penton Media Inc.

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