When Data-Chugging iPads Meet Stingy Wireless Carriers
Jul 4, 2012 5:00 AM PT
This story was originally published on April 5, 2012, and is brought to you today as part of our Best of ECT News series.
I have an odd mix of loyalty and mistrust with AT&T and Verizon -- my iPhone uses AT&T and has since I stood in line for the first version in 2007, and my iPad 2 uses Verizon. While I appreciate the incredible, magical ability to make phone calls and communicate from odd corners of the world as I travel, I also feel as if they don't really care much about their customers. In fact, it sure seems like they're trying to squeeze us for all they can get -- particularly with our mobile data plans.
And my customer sentiment is falling rapidly, along with my behavior, which, when combined with those of other customers, must surely be on the radar of the big tech companies of the world like Apple, Microsoft, Google and Facebook.
I've been watching the AT&T throttling fiasco and wondering when my own grandfathered "unlimited" plan is going to be throttled with little warning. For the most part, I'm just a sipper since I spend the bulk of my time near WiFi. But occasionally I go on the move for days, and when I do, I'm curious as to when and if AT&T is going to make it hard for me to work through my iPhone. I'm sure it will be at a very inopportune moment.
The problem is how these companies structure their services and try to position them and sell them for maximum profitability. They can't seem to communicate with customers in ways that make sense to customers. And trust? It's damn near nonexistent, at least for anyone on a budget who pays attention.
It definitely goes back to texting, which seems like one of the biggest ripoffs in the history of the telecom industry. Massive profitability and stranglehold pricing plans for innocuous little messages that don't seem to require much to send or receive. It's not like we're downloading movies or anything, right? And yet, in order to make text messaging even somewhat affordable, you've got to subscribe to stout monthly plan, whether you use the text messages or not.
The same goes for data. Here's how this works, and we'll use AT&T and Verizon as examples since they touch the most mobile customers in the United States: AT&T and Verizon want you to buy access to a certain amount of data each month whether you use it or not. If you use more, that's cool, you can buy more, but at rates that give you an incentive to overbuy on your monthly plan. Remember the per-minutes charges of yesteryear? This is like that all over again, before the big providers finally caved in to provide something that made reasonable sense to consumers. From a consumer standpoint, we get to overpay, and when we really need the service -- because of travel or an emergency -- we get to overpay again.
The Swimming Pools
This whole issue wouldn't be so bad if Apple hadn't created the iPhone, with its massive app and content ecosystem, then enhanced it with the iPad with the high-definition Retina screen. We now have awesome products with amazing apps that we really want to use. But we can't just buy these items from Apple and work only with Apple -- we need to work with Apple's business partners.
This is like if Apple created amazing mobile swimming pools. Millions of people buy them and put them in their yards. And they are so happy. They can splash and play and soak up the sun. But when they set up the swimming pool, they slowly realize that it doesn't come with any water at all. And you can't really use it without water.
Enter our friendly mobile service carriers. Instead of offering us enough water to fill our swimming pools so we could actually use them, they sell us 12-oz bottles of water that let us get a trickle of refreshing goodness. And when the first couple of bottles evaporates, they'll happily sell us a couple more bottles at a higher rate than the first bottles.
The lesson for consumers? The more you enjoy your swimming pool, the more painful the payment at the end of the month will be.
Of course, consumers like predictable payments for as many bills as possible -- and companies tend to like predictable revenue. But what if mobile data was actually sold like municipal water systems? For starters, you wouldn't pay an arm and leg for water when you are in areas with abundant water. This means that AT&T and Verizon et al wouldn't be able to sell us the hazy promise of some data availability without charging appropriately for it. Second, you'd likely only pay a nominal amount for when you use a nominal amount of data. Not $30 a month whether you use it or not -- per mobile unit. Third, your whole household would share the pipes.
Carriers Can't Hack It
When innovation was slow, our mobile service providers could keep up. But now they can't -- or if they can, they want to pretend they can't in order to maximize revenue for as long as possible. Enter the new iPad. Suddenly there are stories of iPad owners blowing through their monthly allotted data plans in just a single day ... or worse, in just a couple of hours of streaming a basketball game. How do you like that, iPad owner? You're on the go but want to catch your favorite basketball team in tournament play, and boom, you're out of data and have to buy more. Sort of takes the fun out of it quickly.
Rafferty has started to wonder whether the new iPad with LTE will force carriers to update their data plans to something that seems reasonable and useful to consumers. He notes:
Apple sold an astonishing 3 million iPads opening weekend. That's 1 million iPads a day. Essentially, Apple sold more third-generation iPads in a few hours than all Android tablets sold in 2010. This sets the stage for a large pool of LTE users who will first become unpleasantly surprised ... and then brew up some anger. The majority of users will opt for the $30-per-month plan and may up to the $50 plan to garner some more streaming time. Unfortunately, this will only give users a bit more than twice of what they originally had, and without changing their viewing habits, this will not even get them past a weekend without running out "time." Overage fees will surely take a, um, byte out of many pocket books and its sure to stir up some frustration."
More importantly, get this:
Personally, I think the most interesting development from all of this is how Verizon basically bragged about how LTE would allow it to do data better for less when it began rolling out LTE in early 2010. Why? Because 3G networks and its predecessors were designed for voice, not data. With "4G," things would be much better due to the fact that it was made specifically for data. Yet little change in cost of plans or amount of data -- if any -- were seen. Instead Verizon and AT&Ts greed and oligopoly give them full reign to continue in this fashion.
Here Come the Big Boys
Leigh sees similar pressures out in the market when it comes to consumer usage and the rise of mobile-related demand. More importantly, this tension over data pricing with carriers and consumers has the potential to adversely affect other tech companies -- companies that have the power and funding to do something about it.
A little under a year ago, we posted four reasons why Apple may decide to become a wireless Internet service provider. Presently, we conclude that if Apple doesn't do it, one or more of the other Internet-dependent giants shall -- by the year 2020. Companies like Apple, Amazon, Google (YouTube), FaceBook and Microsoft cannot permit their futures to be controlled by today's dominant wireless carriers. Increasingly, their growth will be throttled as cellular carriers expand bandwidth-metered pricing.
Leigh then explains how they can do it through various wireless technologies and available spectrum, along with dizzying magic like white space technologies. The take away for us is that it's possible for an Apple or Google to produce products with the ability to consume data completely separate from cellular service carriers over large geographic areas (as opposed to small WiFi hotspots).
If the Pricing Was Fair ...
I'm not saying that consumers are being 100 percent rational here. No way. Our expectations may be out of line with profitability and licensing and delivery issues. No matter what, though, our current system is about as broken as our health care system, and it's heading for a change. If I were the suits running AT&T, Verizon, Sprint, T-Mobile, etc., I'd be worried. How can they expect to win when they're not even sure what the game is?
Maybe the if our economy was hotter, none of this would matter. But it does matter, and with each new magical mobile device that hits the market, along with awesome data-hungry and HD-streaming apps, it's beginning to matter more.