ATT announced today that it was effectively eliminating unlimited data plans for its customers, and it said that it would allow customers to use a set amount of data services per month before adding penalties. More downloads at the highest speeds will now hit a limit, generate a text warning, and then slow data download speeds and generate higher user fees. It remains to be seen if other carriers will seek to obfuscate the issue to take share, but we applaud ATT for trying to introduce some rationality into the pricing of mobile data services. Ultimately, the current situation is the interest of Apple and its devices, but not in the long-run interest of the carriers or of the broad consumer user base.
In the investment research literature, behavioral economists and others have identified all kinds of irrational behavior by individual investors, leading to patterns of buying high and selling low, for example. Corporations are not supposed to behave this way.
Sprint and others started a race to the bottom by giving away phones and unlimited data plans. Sprint further made a huge bet on iPhones and will be limited to operating on life support as a result. Carriers were subsequently forced into a network upgrade arms race and a pursuit of buying spectrum at ridiculous prices.
Water and power utilities have long ago proven the economic value of tiered pricing, with higher prices for those users who force the utility to build for peak loads which are excessively above average demand levels. Perhaps rationality is coming to the cell phone carriers. Let's hope so.
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