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AT&T Moves Away From Unlimited-Data Pricing - WSJ.com

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AT&T Inc. is abandoning unlimited-pricing plans for new wireless subscribers to email and Internet services on smartphones, kicking off an important and long-awaited shift in how carriers bill their customers.

The change, which takes effect next week, could lower the cost of service for the vast majority of AT&T's users but potentially raise rates significantly for heavy data consumers.

With the move, AT&T's second price cut for wireless plans in six months, the company appears to be trading a hit to short-term revenue for greater control of its network and more power to price accordingly as wireless-data usage grows.

AT&T said Wednesday it will eliminate its $30 unlimited data plan for new smartphone subscribers starting June 7, when Apple Inc. is expected to announce its latest iPhone. The plan will be replaced by new offerings costing $15 an month for 200 megabytes of data traffic or $25 a month for 2 gigabytes. AT&T says 98% of its customers use less than those amounts. Users who exceed 2 gigabytes of usage will pay $10 a month for each additional gigabyte.

The new plans will lower the cost of an entry-level voice and data plan for smartphones by $15, to $54.99. Existing users will have the option of sticking with their current plans indefinitely, even if they switch phones, AT&T spokesman Mark Siegel said.

AT&T is also dropping the $30 unlimited-data option for new buyers of Apple's wireless-enabled iPad and replacing it with the $25 a month 2-gigabyte plan. IPad users currently paying for unlimited data will be able to keep doing so.

"The new plans appear well designed to reduce undue network stresses, as they will sweep AT&T's heaviest users into higher priced plans, or, perhaps more likely, will curtail their profligate usage," said Craig Moffett, an analyst at Sanford C. Bernstein.

Executives at AT&T and Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, have said this year that consumers are going to have to start paying for the amount of data they use as devices become more sophisticated and traffic explodes.

The question now is whether other carriers will follow suit. A spokesman for Verizon Wireless declined to comment, but Verizon Wireless Chief Executive Lowell McAdam indicated in an interview with The Wall Street Journal last month that he, too, is looking at pricing based on use.

"The old model of one price plan per device is going to fall away," Mr. McAdam said, adding that he expects carriers to take an approach that targets a "bucket of megabytes."

Sprint Nextel Corp. wasn't immediately available to comment.

AT&T is scrambling to improve its network in New York and San Francisco, two cities where the crush of data use from the iPhone has hurt call quality. The company believes heavy data use by a small number of subscribers is hurting network quality. Ralph de la Vega, chief executive of AT&T's wireless and consumer units, has said 3% of the company's subscribers account for 40% of its data traffic.

The difficulties are a key concern for Apple, an important partner for AT&T, still the exclusive carrier for the iPhone in the Apple Chief Executive Steve Jobs, speaking at the All Things Digital conference Tuesday evening, said the carrier has made progress but has more to do.

"They're doing pretty good in some ways, and in others they could do better," Mr. Jobs said. "I wish they were improving faster... [but] I'm convinced that any other network, had you put the iPhone on it, would have had the same problems."

In January, AT&T and Verizon cut the price of their unlimited voice plans by 30% in part to pull more subscribers into data plans. Growing data revenue at AT&T has offset the erosion of voice plans. The company said the new data plans would only have a minor impact on revenue and said they don't affect its announced financial projections for the year.

Analyst Philip Cusick at Macquarie Securities says AT&T may see lower growth in data revenue in the short term as a result of the new changes, but will gain leverage over the heaviest data users, improving its ability to manage its network and charge for capacity. Tiered plans may also pull more customers into data plans, he said.

Separately, AT&T said it would allow iPhone users to use their devices as modems beginning June 7, a practice called tethering, for an extra $20 a month.

—Roger Cheng contributed to this article.