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Digital River - Talk to the Experts

AT&T and the All-You-Can-Eat Dilemma

By Chris Maxcer MacNewsWorld ECT News Network
Dec 11, 2009 4:00 AM PT

Listen. Wow. If you're reading this, there's a decent chance you've seen the inundation of whiny news stories and blog posts over the widely reported comments from Ralph de la Vega, president and chief executive for mobility and consumer markets at AT&T, and the admission that AT&T's data services suck (my word, not his) in New York and San Francisco. Oh, along with that, 3 percent of smartphone users gobble up 40 percent of data bandwidth, and the data hogs are probably going to have to pay.

AT&T and the All-You-Can-Eat Dilemma

The news came out of the UBS 37th Annual Global Media and Communications Conference in New York on Wednesday. If you'd like to see the presentation and listen to an audio recording of the event, it's available online.

Frankly, I've been surprised at all the brouhaha, much of it with a distinct lack of detail and copious disdain for AT&T. AT&T is not above reproach, but it's worth taking a closer look.

AT&T's Rosy Glasses

Of course, de la Vega talked up how great AT&T is doing these days, outlining performance figures across the nation, as well as the US$17 billion to $18 billion the company has been pouring into its services infrastructure to beef up 3G services, upgrade to the faster HSPA 7.2 technology, improve backhaul, etc. AT&T also published a fact sheet, which de la Vega talked about, with proof points showing that across the nation, AT&T has the fastest 3G network. In one of the most common measures of reliability -- dropped calls -- AT&T has a national dropped call rate of 1.32 percent, which is within two-tenths of 1 percent off the best score among the major service providers. Put into real terms, that's just a difference of fewer than 2 calls out of 1,000.

Plus, de la Vega talked up how AT&T is doubling its wireless spectrum that serves 3G customers in hundreds of markets by using the 850 MHz spectrum, as well as how AT&T is adding 2,000 new cell sites and 100,000 new backhaul connections. AT&T's HSPA 7.2 (theoretically, twice as fast as current 3G) will launch in six cities by the end of this month, and 7.2 will be available in 25 of the top 30 markets by June 2010.

"When we roll out HSBA 7.2 in those six cities those customers that have iPhone 3GS immediately will be able to use that phone. And that phone will be smoking in terms of network speed," de la Vega noted.

Festering Sores in New York and San Francisco

"What we are seeing in the U.S. today in terms of smartphone penetration, 3G data, nobody else is seeing in the rest of the planet," de la Vega said. "The amount of growth that we're seeing in wireless data is unprecedented. And when you take that into highly concentrated markets like New York and San Francisco, they present unique opportunities to getting the equipment to scale up as the traffic builds."

Opportunities, eh? This is quite possibly the most stupid corporate doublespeak phrase I've heard in 2009, and it's driving me nuts. Basically, there must be some corporate fitness retreat that trains C-level executives to spin problems or challenges as "opportunities." Back in the real world, if there's a problem, we call it a problem, and clearly there's a problem in New York and San Francisco.

Has AT&T done enough in these admittedly dense markets? Maybe, maybe not. For starters, AT&T has twice as many smartphone customers as anyone else in the U.S. That's a lot more data to contend with than everyone else. Also, consider this tidbit that was not widely reported from de la Vega's presentation: When AT&T turned up its 850 MHz spectrum in New York, which is great because it travels farther and deeper into buildings -- more bars in more places -- the move basically slapped AT&T upside the head.

"We saw a lift the minute we turned up our 850 network in New York upwards of 30 percent, and that happened overnight ... that signal went further into buildings, it got into basements, it got into high-rises, and we had a traffic pattern we had not seen in any other city where we have deployed it," de la Vega explained.

Imagine this: One minute AT&T thinks it's doing a good thing driving its signal out to its customers, and boom, suddenly all these iPhone owners can sit in apartments and put their iPhones to work streaming data. AT&T saw a big upsurge in pressure on its backhaul connections, and de la Vega said its equipment vendors hadn't seen the scaling issues before. Still, AT&T and its vendors have been working to shore up the backend.

"In New York right now, I think we've turned a corner. You're going to see gradual improvement, and you're going to see in the short term that this is going to get fixed. We have the highest priority in our company. We realize New York is a key market, and we're going to do a lot better," de la Vega said.

In San Francisco, AT&T has similar issues, particularly in the financial center where it needs to replace older 2G cells and antennas. In addition, de la Vega noted that zoning in San Francisco has gone at a slower pace. Now, I'm not based out of San Francisco, but are zoning issues and delays in a city really AT&T's fault? From what I know about cities and zoning, it's rarely easy or fun.

Also, de la Vega said AT&T is committed to bringing those two markets up "to the standards that we're seeing in the rest of the nation."

Speaking of the Rest of the Nation ...

AT&T rolled out a new iPhone app, Mark the Spot, that lets end users report trouble spots to AT&T. Sounds like a pretty good app to me, but I use my iPhone in the Pacific Northwest, and I've got to say, I've been very pleased with my AT&T 3G service. I can't remember the last dropped call I've had, other than driving down a lonely stretch of highway in the middle of Washington state, and overall, I've been surprised at the small towns and suburbs where I've had 3G service with plenty of bars. Just one guy, of course, but I'll buck the complaining trend and speak out on the positive service I've had. (Of course, I'm sure I'd be livid if I were in San Francisco or New York.)

So, back to the notion of the data hog.

I've seen a lot of comments about how AT&T is whining, and a lot of the comments themselves strike me as whining, as in, "AT&T sold us an unlimited data plan, so they need to step up and deliver unlimited data!" I try not to be a finger-pointing kind of guy, so I'm not going to call out fellow writers, bloggers and the commenters who make the Web so irritating (and enjoyable). But let's put this in perspective.

Say you open a restaurant and you offer all-you-can eat burritos for $10.

Everything goes well for a while and business is good. But then some very large customers with very large stomachs and appetites come to your restaurant every day. They park themselves into a booth and they start eating burritos. Maybe they get out their laptops and do a little work while they eat. And they stay there all day, eating burritos, using the restroom, and spending just $10. At a certain point, more of them appear, because, hey, these are good all-you-can eat burritos for just $10. Now most of the seats in the restaurant are filled with parked burrito eaters, which naturally are crowding out other customers who come in, eat a burrito or two, and leave.

Is anyone going to watch their restaurant fail because the business environment had changed? No freakin' way. The business owner would find a way to change the all-you-can eat deal to something else, ideally by retaining customers, keeping them delighted, and remaining profitable.

AT&T, of course, has these pesky 2-year contracts, as do the other major carriers. AT&T can change the contract, and they very well might, though I doubt they'd be stupid enough to be that heavy-handed about it. But I've been wrong before. Look at America's credit card providers. They've been jacking up rates for customers who've been faithfully paying their bills. The only comfort I get is hoping that there's a special place in hell for these guys.

It's important to note that de la Vega didn't say it would be breaking any contracts with customers. As near as I could tell, he didn't exactly say AT&T would raise prices and move to a tiered pricing scheme, either. He used the term "incentive." That could easily imply a price disincentive, meaning, extra charges for heavy data users, or it could be something else. He called problems "opportunities" earlier, so how much can he be trusted here? Probably not very far. But the point is, he also talked a lot about AT&T working with focus groups and educating its customers on how data is being used. In some cases, he said consumers have no idea how much data they are using. Heavy email? Not so much data. The attention is on streaming video and audio, of course.

So de la Vega vaguely said AT&T is looking at ways to interact with the small 3 percent of heavy data users. Basically, find a way to approach the problem from the end user as well as from the network infrastructure standpoint. This is just good business sense. I didn't hear him call heavy data users names, just note that yes, there's an issue here. In fact, an analyst brought up the issue, as well as the notion of tiered pricing. Seems to me de la Vega responded fairly clearly, and maybe even honestly, without giving up too much detail. I know that if I were running AT&T, I'd be looking at ways to keep data flowing to customers -- from all angles. A race car doesn't run fast just because there's a big engine. Everything has to come together to win a race, and that includes the driver.

Of course, according to the recent Consumer Reports cellular service satisfaction survey, AT&T ranks dead last. Clearly some things are not coming together from all angles for AT&T.

Meanwhile, Verizon isn't the be-all-end-all solution, either. If you think Verizon is a benevolent service provider, you might want to read David Pogue's "Verizon: How Much Do You Charge Now?" article in The New York Times. There's a very interesting allegation that Verizon has been raking in millions by intentionally making it easy to accidentally download data and get hit with $1.99 charges. I haven't been a Verizon customer for years, so I wouldn't know. But I have seen an awful lot of phones from the "walled garden" days that tried to suck consumers into expensive little extras.

Roll of the Dice

So, where does this leave us now?

First, all of us iPhone owners in the U.S. should be thankful that AT&T took the leap with Apple. Seriously. When Apple went to Verizon with its plans for the iPhone, Verizon showed Apple the door.

Did this mean Verizon knew it couldn't handle the iPhone? That it wasn't prepared to deal with a Steve Jobs data onslaught? Did the company see the smartphone trend as a threat to is business practices? Or did the company simply lack vision? Either way, AT&T took the challenge. Sure, they benefited from it, but it was hardly without risk, including the high subsidies AT&T has been paying Apple, as de la Vega noted in his presentation.

"We took a tremendous chance when we first rolled out that device," he said.

Yeah, AT&T did. They let Apple change the entire face of the smartphone, if not the cellphone, industry. They opened the door for Apple to push the industry away from tight and pathetic efforts of control to something that was consumer-driven and much more open. Does anyone think Sprint or T-Mobile could have handled the iPhone better? I don't. As for the draconian 2-year contracts -- that's as much the fault of the American consumer as it is the service providers. Americans crave free or cheap phones. So how can you deliver a free or cheap phone? With a contract that ensures a payback period for the device. Cause and effect. Can you imagine how much better it would be if consumers would simply pay for a good phone and let the service providers actually compete on service?

So what is AT&T going to do? "We're going to try to focus on making sure we give incentives to those small percentages to either reduce or modify their usage, so they don't crowd out the other customers in those same cell sites," de la Vega said. Fine. Data hogs are either real or a myth, and either way, there's only one thing AT&T has to pay close attention to: making smart moves for 97 percent of its customers.

If AT&T missteps with the 3 percent it sees as a problem and creates a downstream issue for the 97 percent of us that are generally underusing our $30 per month plans, consumers can easily walk away for good. The iPod touch is pretty compelling. If AT&T creates a data plan that's going to cost me more than $30 a month, I'm gone, and I love the iPhone. Ditto to getting slammed with unpredictable, ridiculous data charges. If AT&T pulls any of this baloney in the rest of the nation that's doing fairly well, it's bye bye AT&T.

So, AT&T, thanks for doing your part for the iPhone. I really appreciate it and it's enriched my life. Just don't screw us with dumb plans, and we'll stick together for years to come.

MacNewsWorld columnist Chris Maxcer has been writing about the tech industry since the birth of the email newsletter, and he still remembers the clacking Mac keyboards from high school -- Apple's seed-planting strategy at work. While he enjoys elegant gear and sublime tech, there's something to be said for turning it all off -- or most of it -- to go outside. To catch him, take a "firstnamelastname" guess at

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