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AT&T chief regrets offering unlimited data for iPhone (bits.blogs.nytimes.com)
53 points by jacketseason 1877 days ago | hide | past | web | 71 comments | favorite

“You lie awake at night worrying about what is that which will disrupt your business model,” he said. “Apple iMessage is a classic example. If you’re using iMessage, you’re not using one of our messaging services, right? That’s disruptive to our messaging revenue stream.”

Dude, go eat a bag of dicks. Seriously. You are, in 2012, STILL making $1,250 dollars per MEGABYTE of text message data. If there's anything that requires "disruption," it's the disgustingly gross excess of the text messaging business model. Long live capitalism and innovation.

It's incredible that he worries about disruption, when if AT&T were to disrupt its own text message model, they'd be lauded for it by customers and technology advocates.

What do large companies gain by not being the first to disrupt their own markets, aside from obsolescence?

> What do large companies gain by not being the first to disrupt their own markets?

They can continue to extract massive profits from their existing market.

This is the key point of The Innovator's Dilemma. On the one hand, disrupting yourself means cannibalization and strategies that almost certainly seem unprofitable on paper. On the other hand, if you don't disrupt yourself someone will do it for you.

Considering Apple's success I'm inclined to say that disrupting yourself before anyone else has the chance to is the right long-term move, but I haven't studied the topic in enough detail to be sure.

The iPhone attacking the iPod before Android did so is IMO a great example of The Innovator's Dilemma. Many companies would have tried to charge more for iPod capability's on the first generation iPhone. Instead Apple realized cellphones would never be great MP3 players so even if they cannibalized some sales early on trying to maintain an artificial distinction would not be useful in the long run.

In some ways I think they even helped keep the iPod concept alive longer by giving the impression that using a phone for an MP3 player was a compromise not a replacement. Yea, your phone can do this, but why waste the battery life?

And we are watching Apple’s iPad dancing around the outskirts of the MacBook Air market. A more old-school market would be working very hard to force the markets to be completely segmented, strongly differentiating OS X from iOS and so on.

Instead, Apple is making OS X behave more like iOS, reducing the differentiation and creating opportunities for the iPad to steal MB Air sales.

> Instead Apple realized cellphones would never be great MP3 players so even if they cannibalized some sales early on trying to maintain an artificial distinction would not be useful in the long run.

I believe they came at it from another way: if someone is going to eat at your sales (iPod), it might as well be you (iPhone). That's been Apple's mantra for a while.

And although anecdotal, most people I know with an iPhone (or Android smartphone) don't buy new iPods. And if they do, it's a lesser model (i.e. for excercise); not to the same value as before.

Tim Wu wrote a book about this, The Master Switch; essentially the big conglomerates have a good thing going and would rather bury their new technology, since they already have a good thing going, than take a risk on new tech. Wu calls it "the Kronos effect"; essentially they try and kill their children for fear that their children will dominate them.

Excellent book. The telco's clearly have the incentive and power to suppress competition. In fact, they are actively doing it through their legislative influence (e.g. state bans on public broadband networks) and vertical integration with content providers (e.g. Comcast/NBCU).

The moment both Apple and Google embrace an interoperable messaging standard and include a native OS app, SMS will suffer a quick death. In the meantime, consumers will continue to be gouged. It's truly a shame that Stephenson's nightmares have not yet come true.

There is a lot of inertia in the systems, and if they should choose to try to disrupt the market in a way that doesn't work, then they will lose a whole lot.

It's not inertia, it's addiction.

Here's another question; what's the long-term effect of inspiring absolutely incandescent levels of loathing among "customers" who actually feel like severely exploited captives? Could that produce anything that might disrupt a business model? Maybe? Possibly?

Depends on the entry barrier of the business. For ISPs, media companies, telecom companies customer dissatisfaction means very little.

One could have said the same things about airlines before the emergence of Southwest and similar carriers. When dissatisfaction is so high, and you treat your customers with utter contempt, it leaves a gaping hole for someone to disrupt your business model. Eventually someone is going to figure out some sort of distributed wireless technology that routes around the FCC established monopoly the cell carriers currently have. At first it will look like a toy and they'll ignore it, but then it will get better and better until it's too late to stop the momentum.

Is the FCC likely to let a new entrant in to disrupt the oligopoly? Presumably that's part of their remit as a regulator.

Well I think it will happen in a way that circumvents their traditional oversight. It's not so much that the FCC will allow it, more that someone will find a way to operate largely outside the FCC. For example, cable TV successfully routed around equal time and content restrictions for broadcast networks in the US. The FCC was powerless to really control it because it was private. Also, wifi emerged as a standard because it operated in unregulated spectrum which gave companies a chance to innovate. Other than basic certification of devices, the FCC has little sway over what happens with wifi.

I'd be willing to bet they subsidize their data pricing with that text messaging revenue. How many of AT&T's iPhone activations come with a fat text-messaging plan? Data plans are low-margin; text messaging is high-margin.

AT&T, along with most other carriers, made a tremendous amount of capital investment in the last few years to improve the service they provide to smartphone owners. iMessage is a threat to their margin-stealing model.

If they made text-messaging free—or just counted its data use against your data plan—but raised the price of your data plan by $15/mo, how would you feel?

> If they made text-messaging free—or just counted its data use against your data plan—but raised the price of your data plan by $15/mo, how would you feel?

If it meant I could use my own system instead of being firewalled to their weird broken service? And everything acted like a dumb pipe? I'd feel pretty great actually.

If text messaging overages are required to subsidize data plans, then how can European carriers be profitable offering data at significantly lower prices?

One older, indirect reference I found: http://www.androidpit.com/en/android/blog/397226/Why-is-Data...

iMessage is a threat because iPhones are popular; the extent of the threat is directly proportional to iPhone market share.

Carriers made significant amounts of money because of the iPhone that arguably they would not have found any other way to make. Very few of their personal investments led to this success (except perhaps things like Cingular's agreement to invest in "visual voice mail" at Jobs' behest, before AT&T bought Cingular).

From my point of view the complaint from AT&T is a little like an investor trying to socialize his losses while keeping all his capital gains. AT&T enjoyed Apple's success when it benefited them, and now that it's working against them they're worried? Well, tough.

I wrote a blog article on this sometime back.


I totally agree. This business model needs disruption badly.

This article makes no sense: just because the device has to be connected to the control channel does not mean that the control channel bandwidth is somehow free. The control channel is, as you say, the same channel used to keep track of devices, and it is a single channel that has to be shared among all of them (unlike voice calls and all non-GPRS data)... this is why in incredibly busy network regions (such as an after party at WWDC) it is difficult to even get text messages to go through: this is actually a limited resource that can easily be exhausted.

When the top executive at a huge technology conglomerate thinks this way, it just shows you how backward things still are.

A few years ago I was worried too many corporate CEO's don't read the brilliant Innovator's Dilemma book. Now I'm starting to worry they're reading it to find out how to fight against disruptions, rather than create them themselves.

I would bet the number of SMS messages he's sent in his lifetime is in the single digits.

And HE is wrong?

You should tell everyone that pays for sms that.

I refused to pay 15/mo for unlimited sms on my contacts. I rather not have it.

Now, you go eat that or cancel you sms plan. If i were him, I'd charge even more from you suckers. You just keep paying.

The way Apple introduced the iPhone was as revolutionary as the product itself. No carrier garbage on the phone, no carrier control of the end-user experience, "open" platform for apps (that came a little bit later), and unlimited data.

Apple invented none of that. My first smartphone, the Treo 300 (released in 2003) had no carrier garbage, was a much more open platform than iOS, and at least on Sprint came with an unlimited data plan.

Those features were unusual in the dumb-phone dominated industry at that time, but were omnipresent when it came to smartphones.

Didn't the 300 from sprint come with a bunch of crap apps (i.e. NFL mobile or whatever) installed on it?

I also had a Treo 300 (and a 180, a 600, and 750p)--so I maybe be confusing this with one of the later ones. The apps were easy enough to delete, IIRC, but there were some on there. And, as all crap apps, they were completely useless.

That said, sprint did offer unlimited data (and text) for far less than AT&T. I'm still bitter about that.

In America the carriers controlled the market and the device manufacturers where beholden to them. In Europe it was the other way around.

This is slightly off-topic, but I remember reading about a European initiative for a standard mobile charger a while back. Did that actually happen?

Yes and no. There is a standard (microUSB) but they don't have to adopt it. The devices makers just have to make sure there is an adaptor to microUSB for their device is available (they don't even have to ship it with their device, just has to have one in the market somewhere). So much for standards I guess.

USB micro?

While unlimited data leaves something to be desired. I had to flash Galaxy SII with a more recent Android OS without all the AT&T crapware just 20 mins after buying, it was simply unusable.

What begs a question, how can cellular phone providers even think, that their team of 12 underpaid code monkeys capable of producing software that's on par with google? AT&T places, map searching apps, etc are utter crap and you can't even get rid of them unless you flash the OS.

Unfortunately this problem isn't tied only to cellular phone providers. Network card manufacturers for Windows (yes, I'm looking at you Intel) come with their own crapware utilities who think their monitoring app is better than default windows wifi manager. Similarly, consumer routers that race to offer more and more features DMZ, QoS, etc but have millions of bugs because they're not software shops and still refuse to use DD-WRT or Open-WRT which are clearly better and have been developed, used and supported by thousands of professional.

For a while I hated my Motorola Defy. T-Mobile was really behind on releasing Android updates, and all the bloatware really slowed it down. Finally, CyanogenMod 7 came out with Defy support, and I was amazed by how snappy it was, and how much longer my battery lasted. My girlfriend's jealous of how awesome my phone is compared to hers, even though the hardware is identical and we're on the same plan.

We have very different definitions of "unusable." I don't like the crapware, and I eventually did root my SGS2 and removed the crapware. However, my phone was definitely usable, and the main benefit I got from removing the crapware was that my app drawer was less full, which is nice but not a deal breaker of a feature.

Well as an example, on a Sprint HTC phone the crapware auto-started itself not only when the phone powered on, but apparently several times a day (despite using an app-killer). This wasn't just 1 or 2 apps, it was like 10. So my idle battery was draining away in part because I couldn't stop this phone from running things I never intended to use. I have never been happier since switching to the iPhone from that broken ecosystem.

I didn't mean to imply that all Android phones are fine; my point was specifically about the SGS2. Even with its crapware, it is in no way unusable out of the box.

Having used a Motorola Backflip before this, I certainly know the perils of crappy phones crippled with crapware. I just don't think the SGS2 is one of them.

Our versions of usability are different. When I purchase a smartphone, I expect to have more than just an ability to make a phone call. Smartphone means email, web, gps, maps, etc and also means doing those things well (this isn't year 2001 anymore).

Perhaps being a software engineer I have a spoiled sense of what it means to do thing well. The native AT&T apps don't just fail to do things well but clearly have a message "We don't give a damn about you nor this phone. This is our crapware and you have no choice but to use it".

Not sure why you're at the bottom of the thread here, it's quite true. Up until the iPhone's release, none of those things you mentioned were the norm.

Smartphones quite frankly sucked until halfway through 2007. It's been a nice climb ever since, and you can see the effect the iPhone had on other companies designs and policies. Pre 2007 smartphones looked like they were going after the Blackberry crowd.

AT&T seems to have forgotten how many customers they gained by being the only network to offer iPhone for a long time. Now that they've got those users, it's easy to take them for granted, and wish they'd done things differently. Had they not offered an unlimited data plan in the beginning, Apple may have went with another provider. Apple benefits from commoditizing industries adjacent to their main: hardware.

Mobile internet access is a commodity, just as wired internet access is a commodity. Most ISPs today advertise UNLIMITED LIGHTNING FAST DOWNLOAD SPEEDS, knowing that their network can't support everyone downloading at that speed at once.

It's like gym memberships. Gyms can't support all of their members showing up at the same time. In fact, they profit on the fact that most people underutilize their membership. What gyms don't do, is harass, limit, and double charge members who show up every day, to work out and get their money's worth.

Stephenson really should have been called out in the article on the assertion that every megabyte downloaded has a marginal cost. There's no way to squint at that hard enough to make it true.


The article you link to really doesn't support your claim. Yes, bandwidth is plentiful off-hours and expensive during peak times, so pricing based off of total usage regardless of when the data is used is crude. (This is why voice plans have had things like "weekend minutes".) But a heavy user really does have a higher marginal cost than a light user. In the absence of more complicated pricing (which consumers often reject), data caps are reasonable.

I'd love to be able to pay reasonable data charges per megabyte. The problem is that overages are currently insane, compared to what it costs for fixed monthly rates.

Agreed. This exists for the same reason the costs of text messages are so exorbitant: lack of competition.

Doubtful. I think both are too expensive, but both data and SMS plans are only able to be priced where they are because of breakage[1].

[1] http://en.wikipedia.org/wiki/Breakage

Maybe he phrased it badly, but his point still stands.

More users downloading more stuff requires more infrastructure.

At some point enough users downloading enough stuff will saturate the hardware, and they'll have to throttle usage, or spend a boatload on new infrastructure.

This reminds me about bosses of incumbent French telcos when Free launched at a third of their prices for a better plan: "this is terrible, our margins will go gown!" instead of "That's terrible, now our customers will see we were ripping them off!".

Data really has to be near unlimited, it's too difficult for folks to understand how much 1MB of usage is. I have a 6GB data plan and no matter what I do, I never hit 6GB. This is essentially unlimited to me.

I would argue that it was the existence of unlimited data by default that "pushed the phone industry into a data-driven model," which Stephenson acknowledges to be a good thing. Without unlimted data, especially in the early days, you would have had customers fretting over every MB rather than engaging with the full app ecosystem and freely exploring the capabilities of the new technology.

Buy that same logic we should sell people unlimited electricity plans, and see what that does to electric companies when people stop fretting about each and every milliwatt of power they are using.

The problem is that when customers stop caring about how many watts of power they are using and start purchasing products made by manufacturers that no longer are serving a market that has any notion of efficient power consumption you will get the exact same situation that is happening with mobile data.

Specifically, products that use an immense amount of power for a killer feature (such as electric cars; analog being gigabytes/day data usage for things like Netflix) will start proliferating, increasing the average power usage of each person above the floor used to calculate the cost of the unlimited plan.

In that situation, it is fairly obvious that the power company is then going to have to change their rate scheme, as otherwise they are just subsidizing electric cars: neither the users nor the electric car companies (again, Netflix) are otherwise paying for the increased societal power usage.

The temporary initial reaction will then simply be to ban electric cars from the power grid (as happened with Netflix: did not work over 3G due to the bandwidth cost) while the rates are restructured, a return-to-sanity would occur where unlimited plans are dropped, which then will allow those high-power-using products to actually be distributed to users.

The whole while, of course, people will be whining on forums about how power companies have already laid out the cable, and how the marginal cost of power is effectively zero at some points during the day, and how unfair it was for the power companies to take away the unlimited plans; and, when a representative from the power company points out that it was a mistake, he will be lambasted.

I don't argue that AT&T's more recent decisions to stop offering unlimited plans were not both reasonable and rational. I'm just saying that, in light of Stephenson's comment that AT&T is happy with the iPhone deal for turning its business into a data-driven one, the unlimited plans may have accelerated that change. So if that was a serious goal for AT&T, maybe they shouldn't regret their initial offering of unlimited data, even if it makes much more sense now not to offer.

Thanks for making this point.

I'm no fan of AT&T, but the childish, whiny sense of entitlement that's increasingly prevalent online is really disgusting.

His comments about the variable cost are misleading. Firing extra packets on their network doesn't cost them more.

Here's my post on + about it: https://plus.google.com/117025825144195468236/posts/KEj5e3nk...

Unlimited data is the only reason I'm still on AT&T at all

The unlimited data plan has a lower monthly data limit than the tiered plan with the same cost.

Not any longer. AT&T revised its soft caps in March. For grandfathered unlimited users on a 3G or HSPA+ device, the soft cap kicks in at 3GB; LTE users see the soft cap at 5GB.[0] Provided a subscriber is using the LTE version of the unlimited plan[1], he or she makes out better than the current $30 offering, which is 3GB regardless of device.

0 - http://www.engadget.com/2012/03/01/atandt-announces-throttli...

1 - The same soft cap applies even if a subscriber is in a non-LTE area or using a non-LTE device, but has at some point activated an LTE device. The differentiation is the plan. Activating an LTE device with grandfathered unlimited will put the LTE version of unlimited on the account, even if the subscriber lives in an area where LTE is not yet offered.

I see, thanks. I now feel silly for moving off the unlimited plan when I was told I had to to get a plan with tethering.

Meanwhile, I regret ever having given AT&T a single cent, as they're obviously a bunch of greedy, out of touch morons.

Hmm, no regrets on the ill-posed T-Mobile attempt?

That's the same as "we regret that we can't do dialup modems anymore".Basically they need to find other business models.

Maybe PAYMENTS????

telcos suck.. lets start one

i liked this comment: how much does he regret giving tmobile 6 billion dollars for a failed merger attempt?

That was a good gamble. If he got T-Mobile, he could easily charge whatever he wanted for GSM service. Hell, he could have charged the first person the 6 billion dollars. What could go wrong?

I am curious if AT&T will some day regret offering iPhone, like did they really acquire long term customers from others?

I'm sure people regret AT&T too for the same unlimited data and not delivering a network

See this? It's the world's smallest violin playing 'My Heart Bleeds for You'

I think AT&T has that ring-tone for $2.95.

“You lie awake at night worrying about what is that which will disrupt your business model,”

Your business model is ripping people off, I hope you die of insomnia (not literally). Phone bills have skyrocketed in the past 5-10 years as everyone has a cell and as salaries more or less stay the same. Let's not even talk about customer service.

But people are spending far more time on their phones today than they were 5-10 years ago. It shouldn't be a surprise that they're spending more money on their phones, accessories, telecom service, apps, etc. than they were 10 years ago, regardless of what their salary is, since the phone is involved in more aspects of their life.

For what it's worth, if you want to use your phone in exactly the same way you did 10 years ago (occasional short voice calls), you can do it much cheaper today than then, with a TracFone.

Go and get the cheapest Verizon plan and see how it ads up close to $100 (incl tax and fees.) I have one, no data at all and a 2008 phone.

Verizon is an expensive provider. The cheapest Tracfone plans are $12 per month if you only make a few calls per week.

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