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Is the unlimited data plan in jeopardy?

Facing network overload, AT&T is asking iPhone users ?Will you use less wireless data?pretty please, with sugar on top??

The wireless carrier received complaints from iPhone users regarding slow Internet browsing and download speeds, as well as delayed receipt of SMS and voicemails, caused by a high volume of wireless data usage in cities such as New York and San Francisco.

?They were going to give people letters if they went over a certain amount, effectively slowing down the service for people that go over a certain level of wireless data comsumption for three straight months," said Tole Hart, Philadelphia-based research director at Gartner.  

"But they pulled that off the table because they didn?t want more bad press with the map advertisements that Verizon is doing,? he said.

Wireless carrier AT&T claims that the problem is due to a small percentage of consumers hogging network capacity, saying that 3 percent of its smartphone customers account for 40 percent of its data traffic.

The carrier is currently asking these iPhone users to voluntarily reduce their wireless data usage.

Bells tolling for data
AT&T is walking a public-relations fine line, stuck between a rock and a hard place?its finite network capacity and smartphone users? insatiable appetite for wireless data.

While it has yet to announce any alternative to its all-you-can-eat data plans, the carrier might resort to tiered-pricing plans.

AT&T prefers not to punish all for the actions of a few, although how to rein in that greedy 3 percent is a delicate question.

?Their message is ?If there?s congestion, you get slowed down?we?ll have to put the clamp down,?? Mr. Hart said.

?If they still have problems, they?ll tell people, ?If you use too much data, you?re going to get slowed down," he said.

Mr. Hart said tiered pricing may be a possibility in the future. However, people like unlimited data plans?they do not like overages.

?With data, that?s been the mindset, although Verizon has tried tiered pricing, and the carriers will wait to see how that plays out,? he said.

Carriers are hoping that 4G wireless networks will solve their data-consumption issues, and they want to roll them out sooner rather than later.

Sprint is betting on WiMax, while the other carriers are investing in LTE.

?There are going to be more smartphones out there,? Mr. Hart said. ?That?s why they?re going to LTE and faster 4G networks?they?re anticipating demand and building the infrastructure to be able to satisfy it.?

Touchy on iPhone
So what does this mean for marketers? Across the board, marketers are in favor of affordable all-you-can-eat data plans, because greater data consumption means more impressions, more eyeballs.

However, the benefits are lost if the mobile experience is not optimal.

Some believe that the iPhone offers the ultimate platform for marketers. Others lament the fact that brands and agencies focus on a sexy iPhone application while neglecting other mobile handsets and channels that have greater reach.

?There are stories out there saying that the majority of the mobile Internet traffic is coming from the iPhone, which is absurd,? said Mark Caron, CEO of Snac Inc., New York.

 ?A lot of times they include figures from the iPod touch, which is not on AT&T?s network, and it doesn?t serve anyone?s interest, other than maybe Apple?s," he said.

Mr. Caron said he does not want to become the official naysayer of the iPhone, but it really skews the strategy of a company, many of which are making bad decisions based on erroneous data.

?Carriers are incredibly closed up about the data, but AT&T felt compelled to say something about how much network congestion there is, which they say is pretty bad, and I?ll take their word for it,? Mr. Caron said.

Based on AT&T?s figures, 3 percent of the carrier?s iPhone users would be around 330,000 people, Mr. Caron said.

?If truly 3 percent of iPhone users are driving 40 percent of data traffic, that?s a huge, huge number,? Mr. Caron said. ?What do you do? Do you let that skew all of the numbers in the mobile industry?

?AT&T said that a small set of users creating the problem and we?re going to do something about it,? he said. ?We?re talking about less than 350,000 users in the U.S., who I guess are streaming video all day long.?

Mr. Caron?s point is that if AT&T?s high rates of data usage are indeed generated from a small percentage of iPhone users, then those figures do not reflect as wide of a reach as they do on first glance.

In short, marketers should not neglect other smartphone platforms and feature phones.

Piqued traffic
Returning to the carrier perspective, what is the answer for AT&T?s quandary?

?The universal consensus is that you can?t have totally unlimited data plans for $40?you can get away with that on fixed-line broadband, but the cost is way too much on wireless, and there are concentration issues around big markets,? Mr. Caron said.

?[AT&T CEO] Ralph de la Vega is very sensitive to how his comments are interpreted with regard to Net Neutrality and consumer protection, but there?s no doubt in anyone?s mind that something is going to change,? he said. ?Consumers have no idea how much data they?re using?people simply don?t know.

?All of these networks are constrained by peak traffic.?

Another suggestion is to segment data usage by type and charge accordingly.

?Another way to go is divvy it up by types of services?for this low-priced data plan you can use the following low-usage types of data services, but you?ll have to pay more for video streaming,? Mr. Caron said.

There are lots of other data users out there other than iPhone users, benefiting carriers with such data revenues.

Indeed, carriers tend not to talk about it because it is not quite as sexy, but data revenues are important to them even as more basic feature phones still drive a lot of business for them.

?We don?t just focus on smartphones?we focus on the whole market, including feature phones,? Mr. Caron said.

Analyst's take
Mobile Marketer's Dan Butcher interviewed Susan Welsh de Grimaldo, senior analyst at Strategy Analytics, Newton, MA, about her take on the carriers' options to deal with increased wireless data consumption. Here is what she had to say:

"AT&T is currently the most visible operator dealing with capacity issues on its network, but all operators are trying to deal with rapidly expanding traffic growth from smartphones and particularly notebooks and netbooks connecting to 3G networks.
 
"As with most traffic challenges, a few users in a couple cell sites using very data intensive apps such as streaming music can utilize most of the capacity and cause network congestion.

"As Ralph de la Vega pointed out, 3 percent of its smartphone users are generating 40 percent of traffic, and operators need to find ways to reach out to those users and try to minimize their negative impact on the other 97 percent of the smartphone users. Notebook users generate more average traffic than a typical iPhone user.
 
"Two key markets where AT&T has experienced problems include New York, where congestion was in the backhaul and that has mainly been addressed, and in San Francisco, where zoning delays and other challenges have slowed down the upgrade of some microcells - smaller local cells used for extra capacity in high usage areas - from 2G to 3G.

"This points to the need for smoother processes for zoning and permitting to help operators deliver the quality of service consumers demand - and the need to be sure to keep capacity ahead of demand.
 
"Most operators around the globe are finding they have a few users who generate an extreme amount of data, and one option is to educate them on usage and impact on the network.

"Operators overall need to play a role in helping consumers learn what it means to generate an MB or GB of data, what that looks like in terms of consumption.
 
"Operators will become more sophisticated in how they do that, within regulatory constrictions, in terms of throttling speeds, giving traffic less priority once a user reaches a certain level of throughput per month or when the capacity is constrained, or tiering usage levels or quality of service agreements.

"Other solutions could be to offer those top few users a femtocell for in-home use if that is where most of their usage occurs.

"Use of network intelligence and policy control will help operators better manage traffic, based on users and application type, without violating Net Neutrality regulations, and ideally create options to generate more revenue to better keep up with traffic growth.

"Device makers also have a role to play. The next version of the iPhone will do a much better job of integrating solutions to minimize traffic generated [through] compression, something BlackBerrys do more effectively today, although they are also used more for email than browsing and video/music streaming than the iPhone.
 
"It is a very interesting challenge, and not one unique to AT&T.

"Some operators are more ahead of the curve in terms of backhaul upgrade. But it is a balance of managing traffic, managing subscriber usage through plan offerings and education, and building quality networks."