New iPhone/iPad AT&T Data Costs and Tethering – Better or Worse?

AT&T announced a change in the data plans associated with iPhones and iPads earlier this week which they say will save 98% of their customers money.  Really?  Read on to see how this ‘saving’ actually costs out.

Until now, AT&T has offered a single and mandatory data plan for iPhones, costing $30 per month, and offering ‘unlimited’ data usage for that price.

They now offer two data package choices. The first costs $15 a month, and includes 200 MB of data usage. The second costs $25 a month, and includes 2 GB of data usage.  If you are on the $15 per month package (referred to as ‘DataPlus’) you would be charged $15 for each extra 200 MB of data used per month; if you are on the $25 a month package (DataPro) you would be charged $10 for each extra gigabyte.

Which Plan is Best

If your usage is usually safely below 200 MB, you should switch to the $15 plan and you will be saving money.  If your usage occasionally exceeds 200 MB, but never exceeds 400 MB, then you could choose either plan, with very little difference in net cost to you.  If your usage is usually more than 200 MB, and sometimes more than 400 MB, you should choose the $25 plan.

AT&T say that 98% of their customers will end up paying less (in other words, they are saying that 98% of their customers use less than 2 GB of data a month) and so are telling us that 98% of us will be at least $5 a month better off.

Why is AT&T Doing This?

Now I don’t know about you, but I am always surprised and suspicious when a company voluntarily offers a new pricing plan that it claims will save 98% of its customers money. What is the purpose of doing that? Where is the benefit to AT&T? In particular, with a data plan being a mandatory addition to every iPhone, it would seem to be no motivation on AT&T’s part to sell a data plan for anything less than what it thought it could get away with, and was no real complaints about the $30 plan, why would AT&T voluntarily choose to give money back to its captive customers?

The first thing to appreciate and looking at what appears to be, on the face of it, a surprising move by AT&T, is that the previous $30 a month for ‘unlimited’ data has never really been a fully unlimited data plan, no matter how it may be described.

There has been a ‘soft limit’ of 5 GB/month for this unlimited data plan. If you found yourself using appreciably more than 5 GB a month for several months in a row, you would find yourself having an unpleasant discussion with AT&T.

In December 2009, AT&T indicated that 3% of their users were consuming 40% of their data bandwidth.  Clearly  this is a massively unbalanced distribution, way in excess of the usual ‘Pareto Principle’ distribution.  The Pareto Principle suggests that 20% of users in any situation will represent 80% of product consumption – a rule of thumb that is surprisingly accurate in most situations, most of the time.

With this massive imbalance, one can understand AT&T’s wish to constrain the most hungry of data users.

So what we are really seeing here is a move from a 5 GB/month plan for $30 down to a 2 GB/month plan for $25, and a change in policy for how to handle usage in excess of that. Now, you will be charged an extra $10 for each extra gigabyte of data usage over and above 2 GB.

So using 5 GB on the new charging basis would now cost $55 instead of $30. As soon as you go a single byte over 2 GB, you will be paying $35 a month instead of $30 formerly.

Check Your Data Usage

Do you know how much data you are using at present?  You can have a look at a history of your data usage on AT&T’s website.  if you are using Wi-Fi access (which does not count — this is all about AT&T’s 3G wireless access, not about Wi-Fi access) at home and at work, possibly supplemented by extra Wi-Fi access at AT&T hotspots, then your 3G data usage may be surprisingly low.

Here is what I found for my own data usage.  It is probably fair to say that I am a heavier than normal user of data, but I used Wi-Fi at home, at work, and any time I can find a Wi-Fi network elsewhere.

I was surprised at the very consistent levels of data usage.  The reason for the dip in usage in December was due to being out of the country for two weeks.  Clearly, in my case, I should sign up for the $25 package, and will be saving $5 a month.  Or will I truly be saving money at all?

AT&T Add an Extra $20 Charge Too

So far, so good.  It looks like I get to save $5 a month.  Hardly a life changing event, but welcome all the same. But wait, there’s more.  As discussed last week, Apple and AT&T are about to release the tethering feature on iPhones.

It would seem reasonable to understand that part of the reason for creating more tightly defined data usage plans is the anticipation of extra data usage caused by tethering an iPhone to a lap top or other device.  Anyone who does even a little bit of tethering will see their data usage massively increase.

The good news, from AT&T’s perspective, is that their new data plans automatically account for increases in data usage.  If you use more data, you pay more money.  What could be simpler – and fairer – than that?

Unfortunately, simplicity and fairness are not always the prime guiding principles in the real world.  AT&T has decided to charge a gratuitous $20 monthly charge for allowing you to tether your iPhone to any other device.  This $20 charge is completely without any underlying cost to AT&T.  In fact, with the new charging policy they have for data use, you might even think that they would want to encourage you to use more data, so that they can charge you more money for your increased data use.

Unlocking the tethering feature costs no-one any money at all.  But if you want to be able to use tethering with AT&T in the US, you have no choice but to pay an extra $20 a month – a $20 payment which is 100% pure profit to AT&T.

The True Reality of AT&T’s New Pricing

And now, we start to see the true reality of AT&T’s new charging paradigm.  To use the tethering – a feature which arguably could be and should be free, the cheapest data plan now becomes $35 a month (i.e. $15 for data and $20 for tethering), while most of us will be paying $45 a month ($25 + $20), and instead of having access to up to 5 GB of data in the past, we now can only access 2 GB.

Needless to say, if you are using tethering, you could readily use 200 MB in a single day of usage, and anyone/everyone who uses tethering on anything other than a very infrequent emergency basis should sign up for the $25 plan.

So, $45 for 2GB compared to $30 for 5 GB.  Or, to put it another way, $75 for 5 GB now, compared to $30 before. That is the true reality of AT&T’s new price structure.

Will 98% of customers truly be better off?  Color me unconvinced.  What do you think?

iPads Too

Although it is only two months from when the iPad was first launched, AT&T is increasing its data service fees for iPads too.  At the time of release, AT&T specifically said their iPad $30 data plan was truly unlimited, with no soft 5 GB limits applying.  This was a surprising and very generous data plan.

AT&T has now indicated that iPads too will be subject to a $25 2GB data plan rather than a $30 truly unlimited data plan.

If you have an iPhone and an iPad (and many of us do), perhaps there might be a different solution.  It is not yet clear if an iPhone will be able to be tethered to an iPad.  But if this is possible, you would probably be better advised to get a tethering contract for your iPhone and no data contract at all for your iPad, instead accessing data via your iPhone if necessary.