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Is AT&T's data plan price hike justified?

AT&T is increasing the price of its smartphone and tablet data plans by $5, but it's giving consumers more data usage. But do most subscribers need the extra data? Or is this just another way for AT&T to boost revenue?

AT&T has jacked up the prices of its data service, but it's giving customers more bandwidth each month. Is the carrier offering its subscribers more bang for their buck or simply trying to squeeze more cash from its customers?

In this edition of Ask Maggie, I offer my opinion and offer some advice to AT&T customers troubled by the new price increase.

AT&T's new data plan pricing

Dear Maggie,
When AT&T first switched to the tiered pricing plans, they claimed only a fraction of their users ever use more than 2GB of data per month. It seems like they are basically implementing a $5 price increase on all of their smartphone users with no added benefit. Right? I mean if none of those users are breaking 2GB anyway, this seems like it's just a way to put more money in their pockets.

So my question is. If I already have the unlimited data plan or the 2GB plan for $25, can I just keep those plans?


Dear Eric,
You bring up some very good points in your question. You are correct that AT&T announced this week that it plans to change its pricing for its smartphone and tablet data plans.

CNET/Marguerite Reardon

Starting on Sunday, customers signing up for new smartphone service can either get 300 megabytes of data for $20 a month or $3 gigabytes of data for $30 a month. The mobile hot-spot plan will be $50 for 5GB of data. All of these plans are $5 more a month than the previous plans, which were $15 for 200MB of data per month. $25 for 2GB of data per month, and $45 for 4GB of data with a mobile hot-spot.

First, let me answer your question: These new plans only apply to new customers or to customers who want to switch their data plans. Customers already on a contract won't be affected by the changes. And AT&T is even allowing customers who have the old plans now to keep them in the future. This includes people who have unlimited data plans.

The only catch for keeping either the unlimited data plan or one of the older tiered data plans is that you can't change to a new plan and then go back to these previous deals. So once you give up those plans, you're done. After that you have to choose one of the new data plan options.

Now, to get to the main point of your question. Is AT&T really justified in increasing these prices? For some subscribers, it might be a good deal, especially since Verizon offers only 2GB of data for $30 a month. But for the vast majority of users, AT&T is offering a more expensive plan than they previously offered. Sure, the company is offering customers more data for the price, but most people don't need the extra capacity. If AT&T really wanted to give subscribers plans that better suited their needs, it would have kept the old plans and allowed people, who need more than 200MB or 2GB of data a month to subscribe to the 300MB or 3GB plans for $5 more a month.

But AT&T's motivation for increasing the price of its service doesn't seem to have anything to do with offering consumers more choices. It seems the real goal is to increase revenue and to get more unlimited users to choose the tiered offering. Even though $5 more a month may not seem like a lot of money, it adds up for consumers and for AT&T.

Of course, AT&T is free to hike prices whenever it likes. And consumers, who typically have at least four or more competitors in a market, are free to leave AT&T if they think the company charges too much. (Unless they are under contract.) As I pointed out before, AT&T is giving consumers more for their money when compared with Verizon Wireless. That said, in 2010 when AT&T introduced its tiered services, the company said that 98 percent of its subscribers don't need more than 2GB of data per month.

When I asked AT&T's spokesman Mark Siegel what percentage of consumers still fall below the 2GB mark today, he wouldn't answer me. Instead, he said that traffic on AT&T's network is increasing 40 percent each year. And he said that is why AT&T has lifted its data caps and started charging customers more for the service.


But when you look at the average usage of subscribers in the past year,/a>, it seems that most would still have plenty of headroom in a plan that only offers 2GB of data per month.

In August, Validas, a company that tracks wireless data usage, said that the average smartphone subscriber on AT&T used about 425MB of data per month between June 2010 and July 2011. So even if average usage increase by 40 percent, a typical subscriber is still only consuming about 595MB of data per month.

My guess is that these new plans are designed to get more of those customers who were grandfathered into the unlimited data plan to convert to a tiered plan. AT&T has already tried to limit usage of unlimited data plan users by slowing down service for the top 5 percent of data users each month.

AT&T has never defined how much data on average someone needs to use to trigger the throttling. And that's because it's a moving target. But the company hasn't really defined how it calculates the which customers are considered in the top 5 percent. For example, are these customers being compared to other unlimited users only? Or are they being compared to customers on tiered plans? Is the usage percentage calculated by region or is it nationwide?

AT&T has left its policy as vague as possible so that it has more flexibility in enforcing it. Meanwhile, it can still claim that it offers an unlimited data plan.

If most of these heavy users are just over the 2GB mark, AT&T can entice more of them to sign up for a tiered data plan if they set the cap at 3GB. This way these customers can pay the same as they were paying for unlimited service, but they won't have their service throttled and they won't have to pay an overage fee if they exceed 2GB.

In short, I think the change in the plan is not a good deal for the vast majority of wireless data users who are likely to consume less than 2GB of data per month. But it may benefit those who use more than 2GB of data per month. But remember that if you're already an AT&T customer either with an unlimited data plan or one of the existing plans, you don't have to change that plan if you're happy with it. This change is only for new customers or those who want to change their plan.

Keep AT&T unlimited plan or not?

Hi Maggie,
I am writing to ask you what I should do with my data plan. I am an AT&T iPhone user, and I still have my unlimited data plan. Tomorrow is my last day of my monthly cycle and I have used 2.2 GB of data as of 3 hours ago. I know AT&T throttles the top 5 percent of its heaviest data users per month. To my surprise that limit this month falls between 2.0 and 2.2 GB, since I was notified I am among this select group.

This has been an unusual month for me in terms of data usage. I usually use 1GB or less of data. But I am definitely below the 3GB mark, which is the new threshold for tiered plans.

So here's my question: If the iPhone 5 (or whatever the next iPhone is called) comes out with LTE compatibility, should I switch to the Verizon iPhone (My AT&T contract is up this June.) Or should I stay with AT&T and stick with the "unlimited" plan? If I do stay, should I switch over to the tiered plans?

Thank you,

Dear Ted,
This is tough question, because there are multiple factors to consider. The first thing you need to work out is which network is best for you.

Does Verizon have good 3G and LTE coverage where you live and work? If it does, you might want to consider switching to Verizon.

Verizon has more than a year's head-start over AT&T in building its LTE network, and it's been aggressive in its roll-out. So at least for the next couple of years, it's likely that Verizon will have better LTE coverage.

That said, when Apple finally introduces an LTE-version of the iPhone, AT&T may have coverage in your area. And if it does, then you can consider sticking with AT&T.

Once you figure out which network is better for you, then you can think about the data plans. If you go with Verizon Wireless, you won't have an unlimited data plan. And the least expensive plan you can get is $30 for 2GB of data.

If you stay with AT&T, you have to make a choice. Would you rather know that your bill will always include a $30 data charge, but your service may be slowed down if you fall in that top 5 percent of high-end users. Or would you rather make sure you always get the fastest speeds but risk going over your usage cap and paying extra some months?

If you generally stay below 2GB per month, you will probably be fine with your current unlimited plan. But there is a chance that you will use more data with 4G. That said, if overall usage is increasing by 40 percent per year as AT&T claims, then the top 5 percent should be using more capacity, too. So if you stay within your normal range of usage, you're less likely to be in the 5 percent that will get throttled.

You could keep the unlimited plan on AT&T and see how that works out for you. If throttling becomes an issue, you can always switch a tiered plan. Just remember, once you give up your unlimited plan, you can't go back.

I hope this advice was helpful. And good luck!

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.