The big news is that AT&T will be discontinuing its unlimited use data plans effective next week which happens to coincide with Steve Jobs worst-kept-secret announcement of the next-generation iPhone. People are up in arms.
Unlimited, all-you-can-eat wireless data was a beautiful thing for Apple devices on AT&T, delivering streams of Pandora, YouTube videos, a million tweets, and hundreds of webpages without worry. And now it’s dead.
AT&T’s new, completely restructured mobile data plans for both iPhones and iPads have officially launched the era of pay-per-byte data, which we’ve known was coming. We just hoped it would take a little longer. It’s the anti-Christmas.
One thing to keep in mind is that unlimited use tariffs are not part of an efficient or profit-maximizing pricing policy whether you consider monopoly or perfect competition. It is hard to imagine a model under which unlimited use makes sense unless there is zero marginal cost. (If marginal cost is positive then under unlimited use your usage will typically go beyond the point where your marginal value exceeds marginal cost. Whatever the market structure, this would be replaced by marginal cost pricing possibly with a reduced fixed fee.)
Still the specific form of the tariff– zero per-MB cost up to some limit and then a steep price after that– annoys many people. In fact, there are theories that show that this kind of pricing is the best way to exploit consumers who don’t accurately forecast their own usage.
But this brings me to the second thing to keep in mind. Those exploits take advantage of people who underestimate their usage. But here is the actual pricing menu.
I bet that you actually overestimate your usage. I use my phone a lot for browsing the web, maps, etc. and I average under 200 MB per month. Because some months I do go above 200MB, I will buy the 2GB plan for $25 (I don’t need tethering.) My wife on the other hand never goes above 200MB. So the new plan is a better deal for us.
Here’s how to check your usage.
Cheap Talk 
8 comments
Comments feed for this article
June 3, 2010 at 7:53 pm
michmill
Jeff,
You’re making a big assumption in saying that unlimited use tariffs are always inefficient. This is true if there is no limit to consumption. But if there is a limit (at a cafeteria there’s only so much you can eat in one sitting), then it may be efficient to remove the worry about consumption.
There’s only so much you can do on an iPhone right now–it’s hard to use 10GB in a month), unlimited data may make sense. The iPad and the new iPhone probably change that logic, and charging, rather than throttling use is probably better in the long run.
How am I supposed to know how much I will consume on an iPad? Am I supposed to always watch whether I’m in WiFi or 3G? What if the signal keeps dropping for one or the other? Am I charged for the movie that switched over the 3G halfway through?
A better option might be to charge by usage profile: light users can use maps and email and most apps, but not video or streaming audio. Medium users can use these products and heavy users can download movies. If you turn off 3G, you can use anything you want through Wifi. Pricing is straightforward, users are charged for products rather than hard-to-quantify usage, and AT&T can adjust prices to meet demand and historical bandwidth.
By charging for limited bandwidth and making users guess their profile, AT&T is price-discriminating on knowledge and savvy rather than actual cost of service. It’s a shame that we’ve become so numb to this type of price discrimination that don’t even distinguish it from the fair kind–people who use more (because they value it highly) pay more.
June 3, 2010 at 8:17 pm
michmill
I apologize for missing the great link to the “naive agents” paper. But I don’t think this is secondary as you mention. Yes, many people will get a break (in fact, everyone, as the most expensive plan drops $5), but consumption (and thus the price) is likely to rise faster than those limits. When that simple game that you’re running is actually an internet-connected app that takes bandwidth like a movie, you’ll be paying for a higher tier and overage.
Suddenly AT&Ts incentives have shifted into turning you into a naive agent.
June 3, 2010 at 11:40 pm
samson
Jeff,
As long as your average is under 333MB per month, you are likely better off getting the New Data Plus plan with just 200MB. That’s because $25 under this plan gets your 250MB + $10/7.5cents/MB of data. This is true as long as your usage variance isn’t too large — the linearity (in the direction higher usage) of per-MB usage above 200MB implies that it’s your average usage that really matters for choosing optimally, and not the variance.
For example, imagine you average 333MB per month, but your distribution of usage is symmetric about the average and the support is between 200MB and 466MB. Then, every MB you might use above 333MB costs you 7.5 cents more than if you had the next plan up, but every MB you use less than 333MB saves you 7.5 cents versus the next plan up. However, MB saved below 200MB usage saves you nothing. So, as long as you don’t have much of a right tail to your usage distribution (and you aren’t too risk-averse!), the basic plan sounds good.
June 4, 2010 at 8:49 am
jeff
thanks!
June 4, 2010 at 5:21 pm
ryan
i think it’s a situation where it’s important to consider externalities, too. jeff jarvis (buzzmachine.com) has been talking a lot lately about how it wasn’t until the ‘clock got shut off’ that the internet became the revolutionary ecosystem it is today. we were a nation of in-and-out Web consumers, whose wives and parents were nagging them to get off the damn phone line. As jarvis puts it:
The sick and stupid irony of this is that it was AT&T — in the person of Tom Evslin, then head of AT&T WorldNet (remember them? AT&T killed that golden goose, too) — that turned off the ticking clock on the internet when it established flat-rate pricing of $19.95 a month for unlimited use of the internet. That is what exploded use of the internet and enabled us all to browse without worry. That turned the internet into an industry.
And now it’s AT&T that turns the clock back on. Tick. Just as mobile is about to explode with new devices and new uses for us all to be ubiquitously and constantly connected doing all kinds of new things and creating new value along the way, AT&T says it wants nothing to do with that explosion (because it would have to work harder and invest more to do better). So it makes a business strategy out of imprisoning Apple fanboys as long as it can and making them use its service less. Tock.
June 5, 2010 at 9:31 pm
jeff
nice comment ryan. i do agree with you about the externalities.
September 16, 2014 at 10:19 am
http://adgradcouncil.com/
Hi my family member! I wish to say that this post
is awesome, great written and come with approximately all important infos.
I would like to look more posts like this .
January 28, 2015 at 11:13 am
xyz.ms
Howdy just wanted tto give you a quick heads up. The text in our
article seem to be running off the screen in Internet explorer.
I’m not sure if tjis is a formatting issue or something to
do with internet browser compatibility but I figured I’d post to let
you know. The design and style look great though! Hoope you get thhe issue fixed soon. Kudos