1 More Reason to Hate AT&T
Things are going full throttle at AT&T (NYS: T) , and I don't mean that as a compliment.
The telco giant announced Friday that it will begin to slow down the heaviest data drinkers on its unlimited wireless data plans. The move may shake out money-losing wireless customers, but it will also inevitably sink the carrier's already sullied reputation even deeper.
Come October, AT&T will flag 5% of its biggest consumers of data. Multiple notices will go out. An initial grace period for first-time bingers will be extended. In the end, the largest pigs at the data trough will be slapped with slower access until the next billing cycle begins.
In short, this buffet is about to begin discriminating against heavy eaters.
The end of "unlimited" as we know it
Throttling extreme users isn't a death sentence.
Netflix (NAS: NFLX) has been one of the country's more beloved companies for years, yet even the video rental giant has made no bones about slowing DVD deliveries or limiting access to the newest releases for those going through a large volume of red mailers in any given month. It's just good business to keep higher-margin customers -- those going through fewer flicks -- happy, while irking those bleeding a smorgasbord dry.
Internet providers have also been penalizing data hogs through usage caps and reduced bandwidth speeds for years.
Even AT&T moved to tiered pricing for its wired connectivity this year when it decided to top out its originally unlimited data plans at 150 gigabytes of monthly usage for DSL customers and 250 gigabytes on U-Verse.
However, no one is forcing Netflix customers to stick around if they don't like the service. If the new pricing strategy doesn't sit well with a couch potato, canceling the monthly plan is a mouse click away.
Switching cable and satellite television providers is a bit hairier, but it's fairly seamless when we're talking about basic Internet access.
AT&T's policy shift over the weekend for its wireless customers is different, because most customers are on the hook for two-year contracts. Switching isn't easy, but switch they will now that Verizon (NYS: VZ) is stocking Apple's (NAS: AAPL) iconic iPhone and cheaper carriers are beefing up their Android armies.
We've been here before
AT&T is once again in the unsavory position of pioneering a customer-unfriendly practice.
It was AT&T that led the way in nixing unlimited wireless data plans for new customers last year. It was a shrewd move at the time, though Verizon Wireless eventually followed suit.
The saving grace at the time was that AT&T would continue to offer unlimited data plans to existing customers, even when they traded in their handsets for flashier smartphone models. It was a smart move in an otherwise dumb decision, giving loyal AT&T customers a good reason to stick around with Ma Bell when they were ready for an upgrade.
Everything's different now.
Investors probably don't get it. They think that AT&T is about to raise the temperature on those taxing its strained network the most. However, it's not just about shaking off 5% of its lowest margin customers. Once a buffet is no longer truly unlimited, it rattles the value perception of even the lightest data sippers.
Install weighing stations at the local Golden Corral and you'll find even the slenderest of patrons spooked on principle.
Where does AT&T go next, after all?
"Customers can also use unlimited Wi-Fi at home, in the office or elsewhere if available," AT&T promised last year in justifying its decision to stop offering unlimited data plans to new smartphone customers. Several months later, it redefined "unlimited" for its DSL customers.
Encouraging users to stream fewer videos or playing fewer online games isn't even going to fix AT&T's problem.
"But even as we pursue this additional measure, it will not solve our spectrum shortage and network capacity issues," the Friday missive concludes. "Nothing short of completing the T-Mobile merger will provide additional spectrum capacity to address these near term challenges."
Nice touch, AT&T. Trying to spin this move as a way to lobby for regulators to allow it to complete its purchase of T-Mobile is brazen. If anything, it's letting the country know why AT&T should be wielding less power given its pioneering ways in yet another anticustomer initiative.
Is metered broadband data as big a deal as Rick thinks? Share your thoughts in the comment box below.
At the time this article was published The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of AT&T, Apple, and Netflix, as well as buying puts in Netflix and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz wonders if we're talking about 5% of all smartphone customers or all wireless customers. The difference is material, though the point is not. He does not own shares in any of the companies in this story, except for Netflix. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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