By Aaron Blazar (ablazar@atlantic-acm.com)

Last week, Ralph De La Vega, head of AT&T Mobility, announced that the company will take steps to incentivize heavy data users to use less bandwidth. The announcement comes as mobile and cable service providers face increased pressure on their networks from end-user data consumption growing exponentially and driven by unlimited data plan offerings. In the next year, cable internet service providers and wireless service providers will be forced to look for new ways to manage data traffic in order to ensure a reasonable level quality of service among all end users.

Analysis:

With the bandwidth demands of end users growing at record rates, U.S. mobile and cable internet service providers face similar dilemmas related to ensuring network quality while covering costs of required network investments. Although each service provider's current circumstance differs, the solution to controlling network demand will play out along similar story lines.　

• Providers must support any major pricing shift with an equal amount of user education to avoid user backlash. Consumer and political outrage surrounding proposed changes in bandwidth pricing our sure to be heavy. In April, when Time Warner Cable announced plans to engage in consumption-based billing for Internet access, the move was met with immediate resistance from both consumers and politicians charging the company with violating consumers rights. The outpouring of rage and possible political backlash forced Time Warner Cable to shelve the deployment of consumption-based billing two weeks after the plan was announced. Learning from Time Warner Cable’s experience, both AT&T and Comcast indicated that they first plan to educate users before imposing new pricing plans on them (last week Comcast announced the availability of a bandwidth meter for users in its Portland, Oregon market). Other cable players and mobile players would be wise to follow AT&T’s lead by in offering to educate users before looking to change pricing structures. Special consideration needs to be given to confronting consumer and government sentiment/ lack-of-knowledge with hard facts about usage levels and their effects on networks and, by extension, other users.

• End-user education and bandwidth metering tools look great on paper, but controlling/capping actual usage to eliminate heavy users will be an important first step in helping providers alleviate stress on networks. For both cable and mobile providers, updating user agreements to provide an explicit cap for heavy bandwidth users will be the first step toward alleviating stress on networks. Comcast became the first provider to publicly cap its usage with a limit of 250 Gigabytes. As the marketplace continues to evolve providers will look to set different cap levels on usage. For high-bandwidth users, variation of caps between providers may allow carriers to differentiate themselves within the marketplace.

• Implementation of metered, usage-based pricing will be the final step in the long term evolution of Internet access pricing in the U.S. ATLANTIC-ACM views implementation of usage-based pricing as a long-term proposition that will require a complete shift across the industry. ATLANTIC-ACM clearly outlined the case for ISP/cable providers pricing plan changes in this DATALINE analysis: The New Dynamics of Bandwidth Metering. Although pricing changes have long been viewed as a long-term proposition the growth of data usage among mobile players is creating the need much more immediate response. In January, Cisco released a white paper predicting mobile data traffic to grow by a CAGR of 131 percent from 2008 to 2013. This reality, combined with forthcoming 4G rollouts, will drive mobile providers to reconsider pricing structures in an effort to capture a greater return on investment as consumers move to a data-based, voice- as- an application environment on their mobile devices. Once implemented, providers will seek to differentiate themselves through their initial pricing structures. Since pricing for internet access services are set to change, look for a large push from mobile operators to shift pricing away from all inclusive offering towards usage-based pricing in an effort to keep up with customer demands for more capacity in coming years.

The Bottom Line:

Internet access pricing changes will require significant attention from marketing, PR and strategic perspectives as providers work to change the long-held belief that access should be sold on an unlimited basis. As is evident from recent moves by both cable and mobile operators, small moves in the wrong direction can generate significant user backlash. In the end, the care with which providers mold their shifts toward new pricing models will go along way toward endearing or disenchanting themselves in the hearts of consumers who rely on their networks.