Analyst Angle: AT&T tests the shortsighted consumer hypothesis with new data plans

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
With iPhone 4 Apple seeks to recapture its lead in mobile phone sales in the U.S. market over Android, which moved convincingly into second position in the first quarter of 2010, according to NPD’s Mobile Phone Track. Apple has described its new handset as the biggest leap for the handset since it was unveiled, but its success may well be aided by something far less inspiring than changing communications through videoconferencing – simple economics.
Prior to the iPhone 4’s introduction, AT&T – which sold the highest percentage of smartphones to consumers in 2009 – announced that it was scrapping its $30 per month unlimited data pricing for handsets, including the iPhone. It will move instead to two limited tiers. The lower-priced tier is a $15 per month option for up to 200 megabytes. AT&T claims that 65% of its current smartphone users use less than this amount of data per month. The higher-priced tier is $25 per month for up to 2 gigabytes of monthly data; AT&T claims that 98% of its current smartphone users fall below this broadband usage threshold.
AT&T has portrayed the new pricing as a win-win for itself and consumers, but the caps have been met with skepticism. Fear regarding the elimination of the unlimited plan has been driven by a tradition in the cellular industry of onerous overages. But the new AT&T plan takes its lesson from the recent popularity of prepaid plans. When you run out of megabytes or gigabytes, you are simply “re-upped” to another batch of data for a fixed fee. This helps restore some of the uncertainty created by eliminating unlimited pricing. Even if users on a 200 MB per month plan need to double their data in a given month without having the forethought to move up to the 2 GB plan, they will be charged no more than what they would have been charged under the old unlimited plan. The deal isn’t quite as sweet for heavy users, though.
Some also oppose limits because of concern that they will put a damper on digital video usage. Sprint for example, has clearly chosen to highlight video with the Evo 4G and its unlimited 4G data plan pricing and even T-Mobile has played up the importance of video with its own 4.3-inch cousin of the Evo 4G, the HD2. But it’s still too early to ascertain the impact of caps on video at AT&T, particularly as the carrier rolls out HSPA+ and eventually LTE. Much could change before AT&T passes the video-friendly 4G threshold; it is likely the data caps would be pushed further out, since AT&T would need to compete for 4G users against major rivals. Sprint has announced that it has no intention of moving to data caps, thanks to its favorable spectrum position.
In the past we’ve seen Verizon bolster smartphone sales with buy-one-get-one promotions. Positive consumer response to these promotions has led some industry insiders to believe that smartphone consumers are shortsighted, and will grab at a free smartphone even though it will cost them a significant amount in data in the long run.
Now, however, this shortsighted-smartphone-buyer assumption will be tested. The price for AT&T’s 3G data network has been halved, which will save the light user $360 over the course of a two-year contract. And while AT&T may not be giving away a premium smartphone the way Motorola did with the Droid, it will have a popular option at $99 with the iPhone 3GS upgraded to iOS 4. By adjusting the service-pricing lever, instead of handset pricing, consumers will just have to exercise a bit more restraint to optimize their purchase.
Ross Rubin (@rossrubin on Twitter) is executive director of industry analysis at The NPD Group (@npdtech on Twitter). He blogs at The NPD Group Blog as well as his own blog, Out of the Box.