Sunday, June 03, 2012

AT&T Considers Data-Only Billing

What if you had to buy gasoline for your car in the same the way you have to buy cell-phone service nowadays?

First, you’d have to pick a gas company.  You’d go in, fill out a form or answer a bunch of questions, and then you’d have to sign an agreement to stick with that gas company for a year, say, or else pay a $200 broken-contract fee.  Once you agreed to that condition, you’d have to pick your gas plan.  Do you want gas just locally, or for long driving trips?  Gas for a sports car, a pickup, a minivan, or a lawn mower?  Want extra quarts of oil every 2,000 miles?  You have to make all these choices in advance, and then you’ll get billed a fixed fee, more or less, every month, at least as long as you don’t use more than your maximum number of gallons—plus eight or ten dollars’ worth of taxes, air-pollution recovery charges, and other government nitnoise that nobody but the lawyers can figure out.  If you go beyond your plan’s maximum amount of gas, though, you’ll end up paying big, maybe six bucks a gallon, for every gallon you go over.  And by the way, you have to buy your car from the gas company too—it won’t run on gas from any other company.

Sound pretty silly?  Yet if you substitute “phone company” for “gas company” it’s a fairly accurate description of how cell phone and related wireless-network services are sold today.

In the interests of full disclosure, I am no longer a fan of AT&T.  My childhood regard for that firm bordered on adulation, bolstered by their support of the legendary Bell Laboratories and reinforced by a positive experience in high school with an Explorer Scout group run by a bunch of telephone engineers.  I stuck with AT&T through the Ma Bell breakup in the 1970s, but parted ways with the firm after going on an extended trip in the summer of 2000 and committing the unforgivable sin of using my cell phone to call home a lot.  Because of this sin, I paid through the nose, several hundred dollars at least, and switched to Sprint as fast as I could after I got home.

Now that AT&T has more or less reassembled itself out of the sundry pieces that the courts chopped it into, its clout in the market makes it worthwhile to pay attention when its CEO, Randall Stephenson, speculates about future pricing structures.  On June 1, Stephenson said that “in the next 24 months” we may see phone companies selling phone, data, text, and other services on a “data-only” basis.  While he wasn’t too specific about the technical details, this probably means something like charges based on the number of bits transferred, rather than on other arbitrary things like number of text messages sent or number of minutes talked.

The arcane and ridiculous way that companies currently charge for phone and wireless services came about through a combination of historical circumstances, marketing ploys, and government regulation.  Back when there was nothing but POTS (plain old telephone service, on landlines), the big expense to the phone companies was their long-distance networks, once they had installed local plant and equipment.  So the custom of a flat rate for local calls plus per-connection fees for long distance arose, and at the time it made sense.

Then came multiple revolutions in telecommunications technology:  fiber-optic cables and digital transmission (which vastly lowered the unit cost of long-distance calls) and wireless, which increased the volume of data sent and added new varieties such as text and images to the mix.

Technically speaking, it is more challenging to carry the data representing a two-way phone conversation than it is a one-way text message.  The allowable network delay can’t be more than a fraction of a second, and there are difficulties with sidetone (hearing your own voice), echoes, and other things that increase the cost compared to simply sending some bits from one point to another.  Yet my current cell phone plan lets me talk as much as I like locally, but charges me 20 cents for every text message I send, even if it’s simply “OK.”  If you send “OK” via ASCII, a seven-bit-per-character code, that’s a total of 14 bits, or more than a penny a bit.  If I paid that much for a typical phone call, it would run into thousands of dollars.

A sensible billing system from a technical point of view would charge nearly nothing for actions that use nearly no bits, namely, things like texting and email.  Two-way voice would come next, then still pictures, then movies.  The network companies have to structure their pricing so that customers use enough bandwidth to keep them in business, but not so much that their network bottlenecks (e. g. cell-phone tower equipment) gets clogged and spoils the party for everybody.

As things stand, I suspect it’s kind of like a cartel.  Everybody is getting away with the inverted structure of charging more for texts (which use few bits) than for phone calls (which use more and are inconvenient network-wise).  But as soon as some upstart outfit gets out there with a data-only billing plan, the whole house of cards collapses and the consumer wins, in my view.  My guess is that the AT&T head’s announcement is a way of telling the market that they are prepared for the deluge if it comes, though how they are going to deal with it is not yet clear.

All the same, I look forward to the day when cell-phone pricing is a little more rational.  I don’t think it will ever be as simple as filling your gas tank, but the way things stand now, it’s like medical-insurance billing and tax forms:  it takes an expert to catch another expert who’s cheating, and the average citizen doesn’t stand a chance against a company that decides to bend the rules, or to create Byzantine price structures that are legal but so complex nobody can really know if they are getting a good deal or not.  Let’s hope Mr. Stephenson’s prophecy comes true, and maybe I’ll even consider going back to AT&T.

Sources:  The Austin American-Statesman print edition carried an AP article by Peter Svensson with the headline “Data-only plans may be near, exec says” on Saturday June 2, 2012. 

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