AT&T Clarifies Throttling Policy; Comes Clean On Soft Caps

After months of playing coy with critics of its throttling policy, AT&T (NYSE:T) finally came clean on the stipulations of its unlimited plans last Thursday. The company’s support site for unlimited data plans now clearly states that consumers that use more than 3GB of data on an unlimited 3G data plan and 5GB on an unlimited 4G LTE data plan will see slower speeds than usual in what it calls part of its “network management” policies. ^[1] However, users on tiered data plans will not be affected by this policy. AT&T, along with Verizon (NYSE:VZ) and Sprint (NYSE:S), has been facing a spectrum crunch as demand for data services continue to soar with an increasing adoption of 3G/4G smartphones and tablets.

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Spectrum woes

AT&T’s spectrum problems are well-documented. It first started throttling users’ data speeds last year and maintained that only the top 5% of its users were going to be affected by this. But such a subjective and sliding measurement scale led to the restriction for many users that claimed to have used less than 3GB in a month. This left many unlimited data users exasperated as those using similarly priced 3GB tiered plans were left unaffected. The clarification presented now should help matters as users are going to be warned before their speeds are throttled for the first time. Moreover, they are now assured of 3 GB of data at higher 3G/4G speeds.

As an answer to its spectrum issues, AT&T tried to acquire T-Mobile last year. However, anti-competitive concerns caused the FCC to block the deal, forcing AT&T to back out and fork over $1 billion of spectrum in addition to $3 billion in cash to T-Mobile. At the same time with Verizon pulling away in the LTE race, AT&T has had to find additional spectrum for its LTE plans. AT&T’s LTE network is available in 28 markets and covers only 74 million U.S. citizens. In comparison, Verizon covers 200 million Americans in 195 U.S. markets with its LTE network.

It is now trying to gradually phase out the older 2G networks and re-farm the spectrum for use in the new LTE network. ^[2]

Auctions to serve the industry well

The U.S. wireless market is intensely competitive with the total number of wireless connections (327.6 million) exceeding the total population (315.5 million) in the United States (as of mid-2011). ((CTIA Semi-Annual Survey Reveals Historical Wireless trend, October 11th, 2011)) As an ever increasing number of smartphone users demand higher speeds and congestion-free networks, wireless carriers are hard-pressed for additional spectrum in order to meet these demands. The recent Congressional approval for wireless spectrum auctions should help address the industry needs. (see Wireless Industry Cheers as Spectrum Auctions Seem Likely)

Meanwhile, Sprint remains the only carrier to offer unlimited plans. It is possible that the highest data users may defect from AT&T to Sprint, but considering that most of them are on two-year contracts and face a heavy penalty fee should they choose to terminate their plans, the defections should be low. Also, many of them have signed on to family plans so moving the entire family to another service also servce as a deterrent.

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1. Support / Unlimited Data – Data Speeds, AT&T Support Site [↩]
2. AT&T urges customers to upgrade from 2G networks, MarketWatch, March 1st, 2012 [↩]