AT&T's New Family Plan Option Means Hike in Data Fees

AT&T Inc (NYSE:T) is following bigger rival Verizon Wireless (NYSE:VZ) with a new type of family plan that comes with as much as a four-fold increase in its fees for data services such as mobile Internet.

But, unlike its rival, AT&T says the plan will be an option rather than a requirement for new customers and subscribers upgrading to a new phone.

Late in August, AT&T, the No. 2 U.S. mobile provider, will launch the new offering, which allows its customers to buy a single data plan for up to 10 devices and includes unlimited phone calls and text messages.

While some customers who talk and text a lot could save money under the plan, some will end up paying quadruple their current fee for data. For example AT&T will charge $40 for 1 gigabyte of data per month, compared with its current rate of $30 for 3 gigabytes.

The hope is that the new plan, similar to one kicked off by Verizon Wireless in June, will entice individuals and families to connect more devices such as tablet computers to the AT&T network because they will no longer have to buy a separate monthly data allowance for each mobile device.

Since young consumers are making fewer phone calls in favor of communicating via data services, AT&T, like Verizon Wireless, is overhauling its pricing in a bid to boost revenue from data services and to avoid a future decline in voice revenue.

Pivotal Research analyst Steve Sweeney expects the plans to increase overall revenue over the long term though it may reduces average revenue per customer slightly in the short term.

"AT&T and Verizon are both changing their pricing structures to maximize their long-term revenue growth based on where the highest growth in demand will be coming from," Sweeney said, referring to growing demand for data services.

Analysts see AT&T's offer of the new plan as an additional choice for upgrading and new customers working in its favor.

"You really can't alienate people by giving them another option," Pivotal's Sweeny said. "AT&T's approach is a little smarter."

In particular Barclays analyst James Ratcliffe said in a research note that AT&T wants to hold on to its 9 million customers who bought the Apple Inc <T.N> iPhone in the second half of 2010, when AT&T was still the only U.S. iPhone provider.

Since AT&T is letting them stick with their current data plans, these customers, whose contracts will end this year, may be less inclined to look at other providers such as Verizon Wireless or Sprint when they buy their next iPhone.

BUYING IN BULK

AT&T hopes the new plan leads people to buy data in bulk because the bigger the data plan, the cheaper the per gigabyte rate. A customer who wants 20 gigabytes of data, would pay $200 every month, or $10 per gigabyte - level with its current $30 plan.

"We think there's really great flexibility for these plans," David Christopher, AT&T's chief marketing officer for mobile told Reuters.

For example, he said a customer could use more data on their tablet one month and switch their heaviest usage to their smartphone the next month without adjusting their plan.

Or if some family members tend to use less data than others, the heavier users would be less likely to go over their limit and incur hefty overage fees under the new plan.

But if the higher price for each gigabyte of data is off-putting for some consumers, there is one key difference between AT&T and Verizon Wireless. AT&T will keep offering its existing plans whereas Verizon Wireless offers no choice to new customers and customers upgrading to a subsidized phone.

"If shared data is not for you then we'd love for you to stay on our existing plans. We know the existing plans make sense for lots of situations," Christopher told Reuters in what appeared to be a veiled dig at Verizon Wireless.

The executive declined to disclose the company's expectations for the impact on revenue and customer growth.

When Verizon Wireless announced its data share plan on June 12 some customers complained that they did not want unlimited phone calls or higher data fees.

Under the new plan, an AT&T customer with one smartphone would pay a $45 monthly fee for unlimited calling and texting and a $40 fee for one gigabyte of data. The voice and texting fee per smartphone drops to $40 for customers who pay $70 a month for 4 gigabytes of data.

An AT&T customer buying 20 gigabytes for $200 a month would pay $30 for voice and texting for each smartphone, leading to a total bill of $350 for a family of five.

In comparison, a Verizon Wireless customer would pay $150 for 20 gigabytes of data and $40 per smartphone, also leading to a total bill of $350 for a family of five.

Smaller rival Sprint, the No. 3 U.S. mobile service, does not offer family plans for data, but instead offers unlimited data usage for a flat monthly fee.

Verizon Wireless is a venture of Verizon Communications Inc <VZ.N> and Vodafone Group Plc <VOD.L>.

AT&T shares were up 5 cents at $35.87 on New York Stock Exchange where Verizon shares were down 8 cents at $45.58. Sprint shares rose a penny to $3.66 also on NYSE.