AT&T Bay Area Coverage MapThis week AT&T became the first major US operator to move away from unlimited data plans, including those on iPhones and iPads. The new plans go into effect June 7 and offer subscribers two choices— a 200MB data limit for $15 per month or 2GB for $25. Tethering is now available to 2GB subscribers for an extra $20 per month. Existing AT&T subscribers with 3G iPads can get grandfathered into the old $30 per month rate.

AT&T clearly wants to drive data service usage and penetration but is yet struggling in places like San Francisco and Manhattan where iPhone data usage is taxing it’s network. By moving away from unlimited data plans, to a metered approach, it can step it’s way into HSPA+ and LTE with each data hungry subscriber segment at a time.

At the surface, the view is that most customer bills will fall by $5 and it is this fact that the marketing machine is circling around. AT&T’s pricing moves, however, seem to encourage heavier use of WiFi. The ability to tether one’s smartphone to their laptop or other device is a feature that many Americans have been wanting for some time, one that subscribers in other countries have been enjoying for a few years. But they are mostly free, not an additional $20 a month. AT&T is also allowing subscribers under the new pricing plan unlimited access at no additional charge to its more than 20,000 AT&T WiFi hotspots in the U.S. However, that’s physical access, not data consumption. Use of WiFi tethering will eat into the 2GB data limit substantially. As Colin Crawford of IDG pointed out this week, downloading a copy of Wired magazine over WiFi under AT&T’s new pricing plan will cost you $5.There goes that $5 monthly savings, oops!

Last week the operator set up a giant WiFi hotzone in Times Square in New York offering free access to its mobile broadband customers. It may deploy additional hotzones in other cities. But again, this is access, not usage (downloads). Those trumpeting the move to tiered pricing point out that operators need to recoup their investments as a small group of heavy users tend to consume most of the bandwidth in major cities, and that iPhones increase data traffic about 40% more than other smartphones. But just as Americans get more comfortable consuming more data on their devices, the operator’s reaction is to throttle them back a bit in the guise of lower prices.

The 200MB limit is certainly a joke for anyone with an iPhone, iPad, or Android device, as they will burn through it quickly. AT&T’s moves do make things more manageable for the operator, and hopefully on the billing side things will be easy to figure out. The operator has joined calls by other major service providers in the US for more spectrum bandwidth allocation from the FCC to combat the rise of data usage in the US that is apparently choking operators’ networks. But a common misconception is that this is a bandwidth issue and that more spectrum dolled out by the FCC at tax payer expense will solve the problem. When in fact the issue lies with the out of date backhaul systems that most operators in the US keep running. Several industry watchers have commented to me over the past year that if operators hadn’t spent so much previous FCC money meant for spectrum on buying more inefficient backhaul equipment, the US would be much farther ahead in the mobile data race.

So while saving an extra $5 a month looks good on paper for AT&T subscribers, step back and envision a year from now when there’s increasingly more video on websites including mobile ones. Then we’ll see who’s happy with being able to stay under their capacity limit. In fact, Cisco this week rolled out its updated Visual Networking (VNI) forcast expecting a quadrupling of IP traffic in four years, with video exceeding 91% of all global consumer Internet traffic. Video traffic is expected to surpass peer-to-peer traffic by the end of this year, driven by face to face interactions using video over IM, video calling, and on multiple screens. This means mobile as well, and operators are going to need to significantly upgrade their backhaul equipment to accomodate this significant shift to video. Gaining additional spectrum will not solve the entire equation.

Verizon Wireless and others are expected to follow suite in price tiering, so the days of unlimited plans may well be over. However, the cost of subscriber unhappiness could rise higher as increasing numbers of Americans get more addicted to smart phones and tablets and immersive applications. The network continues to be the bottleneck, no matter how good data or video compression might get in the coming year.

If AT&T can get a better handle on it’s network (especially the backhaul issues) and can rollout the mega-million dollar infrastructure network upgrade for the Bay Area this year that it’s promised, then its brand image can improve. iPhone coverage issues have not inherently hurt Apple’s image, but rather AT&T’s, and the operator must tread the tiered pricing waters carefully, as it has much to lose, especially if it loses it’s iPhone exclusivity at some point. At the end of the day, data is data, bits are bits, and pricing and packaging become the only differentiator when most of the traffic has shifted away from voice, and over 90% of the IP traffic is driven by video.

– Randy Giusto