mocoNews - AT&T A Victim Of iPhone Success As Users Flock To Bandwidth-Hogging Apps

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Dianne See Morrison

mocoNews.net
Monday, May 11, 2009; 8:59 AM

Data was supposed to be the carrier's new growth area, as voice calls start to fall off, but as the WSJ.com writes, it's doubtful that new data revenues from web browsing and entertainment services will be profitable, as measured by return on capital spend. Take the iPhone, for example. According to the paper, AT&T (NYSE: T), the device's exclusive carrier will soon become victim to the iPhone's success with subscribers. iPhone users are happily downloading away bandwidth-hogging apps, such as games and videos, at the rate of two to four times as much as other smartphone users, yet both sets of subscribers pay a flat $30 month. If and as AT&T's proportion of iPhone users grow, so does the strain on their networks, necessitating additional investment into networks.

As for next generation networks, analysts don't believe these will offer a better return. Though AT&T and Verizon (NYSE: VZ) have already invested billions into 4G networks, Sanford C. Bernstein analyst Craig Moffet says the return will be even lower than on older services, despite being more efficient at delivering data apps.

The most obvious solution, the newspaper notes, is to abandon unlimited data pricing plans. But that's not such an easy way out. The reason why carriers offered unlimited data in the first place was because early consumers of mobile browsing and other data services found the original way that data was priced confusing, and were nervous of incurring large charges if they over consumed. Raising the pricing on unlimited data may also not go down particularly well, especially as networks compete with one another to keep hot devices. Indeed, AT&T, fighting hard to keep its exclusivity arrangement with Apple (NSDQ: AAPL) which is set to expire next year, is reportedly mulling a data plan price cut of $10 a month. Such a cut would be an easy way to boost iPhone sales, which in turn, could make Apple very happy, but in turn would put more strain on their network.

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