by alec on April 13, 2011
Remember MagicJack, the USB dongle for your PC that let you make unlimited calls for life? All you had to do was plug it into a PC, then plug a phone into the dongle, and presto… never pay for phone calls again. Not bad for a measly $39.95.
Unfortunately, maybe the promise of unlimited calls for life was a bit overblown. You see, it turns out that MagicJack’s business was dependent on charging access termination and origination charges to AT&T for calls that terminated on the device, or calls made to toll free numbers that originated on the device – a pretty similar model to the free conference calling model. Over the weekend, Andy Abramson spotted a piece on Telecom Law Monitor which reports that the FCC has said that MagicJack’s sister company and the access fee collecting entity, a CLEC named YMAX, had improperly charged AT&T. The YMAX tariff didn’t provide for the types of charges that they were levying on AT&T, which is a strict no-no.
Outcome: YMAX will have to file a new tariff, and AT&T doesn’t have to pay the outstanding bill.
The longer term issue, however, is the future of this business model. The incumbents are all fighting hard to put the free conference callers, and companies like MagicJack, which rely on access termination and origination charges out of business. And it’s working. So how long before the FCC simply decides to move to a bill and keep regime? And how long before MagicJack’s customers launch the inevitable class action suit?
The New York Times report on AT&T’s decision yesterday to scrap unlimited data plans had a couple of choice quotes showing just how the company is spinning this decision. They’ve replaced their unlimited plan with a choice of a $15/mo 200m or a $25/mo 2g plan. AT&T also introduced a new charge for tethering — $10/mo for the right to connect your phone iPhone to a data device like a PC.
Analysts are blaming a small group of “data pigs”, primarily iPhone users, for the changes.
“The free lunch for the ultra-heavy data user has been taken off the menu,” said Roger Entner, a telecommunications industry analyst with the Nielsen Company. “The new generation of heavy users is going to pay according to what they use.”
When wireless customers take “unlimited” literally, analysts say, those plans rapidly become money losers for the companies.
The problem is not unique to AT&T, but it has suffered more than its competitors because of the data demands of iPhone users. They use on average a third more data than the typical smartphone owner, Mr. Entner noted.
“The biggest data pigs in the world are the iPhone guys,” said Edward Snyder, an analyst with Charter Equity Research.
I don’t think this is about capturing “data pigs”.
- Anecdotally, most of the people I know who own iPhone use in the range of 500 to 600m of data. 200m would be too small, and 2g would be too much. AT&T’s own research backs this up – 98% of their customers use less than 2g per month, and 65% less than 200m. For most customers, AT&T’s decision is going to mean cost savings of between $5/mo and $15/mo, not additional costs.
- Although tethering has been available at no cost for some time here in Canada, I don’t know very many people who use it. Performance, compared to a dedicated (and cheap) cellular modem is poor, battery life on the tethered device is terrible, and the whole process is inconvenient. AT&T’s tethering option is pure profit – money in the pocket to capture a category of casual data users who will likely never impact the company’s network materially.
- I stream audio and video all the time on Rogers, which has had tiered wireless data since day one, and I’ve never hit any of the limits. Ever. Why? There’s a lot of WiFi around, and iPhone picks it automatically when it’s available. My actual usage of 3G data is pretty low. For most people, even those who make phone calls using Skype on 3G, tiered data plans aren’t going to matter.
It seems pretty clear that the philosophical war inside AT&T over pricing models has been won by the bean counters. AT&T’s MBA’s are pining for the ability to tinker with plans and pricing to “optimize” revenue and profits. The only way they can do that is to get back to tiered pricing models and they’re willing to take a short term revenue hit, since 98% of their customers never exceed 2G of data per month, in order to regain the control that they crave.
