By ANDREW DOWELL And ROGER CHENG
In a significant shift in how phone carriers bill customers, AT&T Inc. will stop selling unlimited Internet data plans to new customers that buy smartphones and iPads, and will instead begin charging more for heavy bandwidth users.
New AT&T customers will have to chose between two data plans with monthly usage limits—and pay additional fees for extra use. Existing customers, however, can stick with their current plans, AT&T said.
The change could mean lower rates for people who use their phones mainly for email, Web browsing and phone calls, but higher bills for people who use their iPhones or BlackBerrys to watch online videos or listen to Internet music.
The move by the No. 2 U.S. wireless carrier kicks off a broader realignment in the industry, where networks have battled to manage an explosion in data usage and phone applications on more powerful devices. It comes as Apple Inc. is expected to announce a new iPhone next week, and about a month after AT&T began carrying the iPad tablet on its network.
AT&T's move breaks the ice, and the question is whether other carriers will follow suit. A Verizon Wireless spokesman declined to comment, but Verizon Wireless CEO Lowell McAdam indicated in an interview last month that he, too, is looking at charging based on data usage. Carriers need to take an approach that targets a "bucket of megabytes," Mr. McAdam said.
Sprint Nextel Corp. said Wednesday it isn't considering moving to usage-based pricing, and believes its unlimited offering sets it apart. A spokesman for T-Mobile USA, a unit of Deutsche Telekom AG, declined to comment.
AT&T's change promises new headaches for consumers, who last decade were freed from the need to count minutes on their cellphone plans. Subscribers now face the prospect of having to check their data counter before opening an email or checking out a video on YouTube.
"I think most users don't really understand," said Eva Otto, a 33-year-old real estate broker in Seattle. "A lot of people don't realize how many megabytes they're downloading."
AT&T said it plans to help by giving subscribers options for keeping up with their usage, from text-message warnings when they get close to limits to apps that let users see their data consumption.
"It's going to be interesting to see what the customers do," Ralph de la Vega, head of AT&T's wireless operations, said in an interview. He said AT&T's handset partners were pleased with the move. Apple had no immediate comment.
In place of a $30 unlimited monthly plan, new AT&T subscribers will be able to choose between paying $15 a month for 200 megabytes of data or $25 a month for 2 gigabytes of usage. Consumers who exceed the monthly limit must pay $15 or $10 additional, respectively.
"The danger here is that users second guess whether they should download the next app, watch the next video, do the next search, etc. because it might cost them money," said Matt Murphy, a partner at venture capital firm Kleiner Perkins Caufield & Byers. "It would be a shame if it had any impact on usage at just the time when users are discovering the mobile Internet and the new vibrant world of applications."
AT&T presents the plan, the second time it has cut prices on its wireless plans in six months, as a benefit for most subscribers. The carrier says two-thirds of its smartphone customers use less than 200 megabytes a month and 98% use less than the 2 gigabytes of data offered under the bigger plan. Sanford C. Bernstein estimates the average iPhone customer uses 250 megabytes of data each month.
However, heavy users of streaming video services like Google Inc.'s YouTube or music services like Internet radio outfit Pandora Inc. could quickly burn through their allotments. AT&T estimates that one minute of streaming video consumes two megabytes of data.
Google declined to comment on AT&T's change. A Pandora spokeswoman said only a small percentage of users would be affected by the limit set by AT&T's larger data plan.
The move comes as regulators at the Federal Communications Commission are increasingly concerned about "bill shock" among wireless subscribers. Some consumer advocacy groups criticized the move, arguing it hurts subscribers with unfair charges and sets the stage for higher data-usage prices in the future. "We see it as a rate hike dressed up as fancy PR," said Joel Kelsey, a spokesman for the Consumers Union.
The new plans will lower the cost of an entry-level voice and data plan for smartphones by $15, to $54.99. Mr. de la Vega said the lower rate should bring in customers deterred by current smartphone plans.
AT&T is also dropping the $30 unlimited-data option for new iPad buyers and replacing it with the $25 a month, 2-gigabyte plan. The move follows warnings from analysts that data usage by iPad customers could weigh heavily on AT&T's network. The carrier has sold a lot of the $30 plans, and early adopters have been heavy users, Mr. de la Vega said.
The company is hoping customers will shift their data use to more-robust Wi-Fi networks, where unlimited use will be free under the plans.
AT&T is scrambling to improve its network in New York and San Francisco, two cities where the crush of data use from the iPhone has hurt call quality. The company believes 3% of its subscribers account for 40% of its data traffic.
The network difficulties are a concern for Apple, an important partner for AT&T, still the exclusive carrier of the iPhone in the U.S. Apple CEO Steve Jobs, speaking at the All Things Digital conference Tuesday evening, said the carrier has made progress but has more to do.
"They're doing pretty good in some ways, and in others they could do better," Mr. Jobs said. "I wish they were improving faster… [but] I'm convinced that any other network, had you put the iPhone on it, would have had the same problems."