If competing carriers follow AT&T?s lead and phase out unlimited data plans, the consumption of paid and ad-supported mobile content may be affected.

AT&T spun its new wireless data plans as geared toward making it ?more affordable for more people to enjoy the benefits of the mobile Internet,? but the move is clearly about reigning in the heaviest data users, and all-you-can-eat data plans are vital to spur the high levels of mobile content consumption on which publishers, marketers and advertisers thrive. Analysts and industry insiders had mixed opinions about how AT&T?s decision would affect the sale of smartphones and consumers? mobile data consumption.

?I don?t think this move by AT&T will slow the adoption of smartphones and connected devices like the iPad, as enough consumers have experienced first-hand the benefits of how these devices enrich their daily life,? said Paul Kultgen, director of mobile media and advertising at Nielsen Online, Chicago. ?To now put the brakes on having one is not something that is going to occur.

?However, it does create the risk of adding complexity back into the buying decision,? he said. ?Clearly demystifying data costs was one of the core reasons smartphones sales took off?everyone gets unlimited.

?Now you are again asking the consumers to project their data needs and have them feel comfortable they are not being taken advantage of, or will face a surprise at the end of the month.?

Mobile content
From ringtones, ring-backs and wallpapers to applications, games, virtual goods and video, the mobile content industry in the United States is booming like never before.

Consumers in the U.S. are currently shifting the way they consume content. There are two main channels in the content market: on-deck?distributed via wireless carriers?and off-deck (see story).

With smartphone penetration increasing steadily, mobile applications are on brands? radar as a necessary complement to their overall marketing strategy (see story).

From news and entertainment to commerce, from games and social media to television and video, consumers have a healthy appetite for a wide spectrum of content, all of which is delivered via the mobile Web, applications, video and MMS.

However, consumers? enthusiasm for consuming mobile content, whether on-deck or off-deck, is in many cases predicated on the peace of mind that all-you-can-eat data plans provide.

Consumers must feel at ease texting, browsing, running applications and downloading content to their hearts content without fear of wireless bill shock at the end of the month.

If consumers reign themselves in, that means fewer visits to mobile Web pages and applications that are ad-supported and less time spent on those sites and applications, which means fewer ad impressions and fewer opportunities for click-throughs or engaging within the ad unit in other ways.

This would be the net result of subscribers back on the data meter.

If unlimited data plans go by the wayside, various producers of mobile content would be affected?broadcasters and publishers, retailers and merchants, marketers and advertisers, bloggers and developers?even YouTube and mobile television providers.

Mobile video and television are approaching a tipping point, with consumer attitudes and technology evolving simultaneously. Viewing video on a mobile device, however, eats up a considerable amount of data.

Those industries, which provide excellent platforms for mobile video advertising, cannot thrive without high penetration of all-you-can-eat data plans.

As technology continues to become more sophisticated, powering more compelling content and more engaging ad units, consumers showing their willingness to consume content and engage with brand campaigns at ever-increasing levels.

That could change if subscribers have to check their rate of data consumption daily. And that would be bad for everyone in the mobile space.

Mobile data consumption is the lifeblood of the entire ecosystem.

Nuts and bolts
AT&T customers can pick either a $15 per month entry data plan with 200 megabytes of data, called DataPlus, or a $25 per month plan with 10 times more data (2 gigabytes).

Current smartphone customers are not required to switch to the new plans, but can choose to do so without a contract extension.

With the new wireless data plans, pricing for a smartphone voice and data bundle now starts at $54.99 per month for an individual plan, or $24.99 per month for an additional line on a FamilyTalk plan, $15 per month less than the price of the previous entry-level bundle.

However, AT&T did not specify how much customers who exceeded their allotted amount of data would be charged.

For new iPad customers, the $25 per month 2 GB plan will replace the existing $29.99 unlimited plan. They will continue to pre-pay for their wireless data plan and no contract is required.

Existing iPad customers who have the $29.99 per month unlimited plan can keep that plan or switch to the new $25 per month plan with 2 GB of data.

Smartphone customers, including iPhone customers, who choose the DataPro plan have the option to add tethering for an additional $20 per month.

Tethering lets customers use their tethering-enabled smartphones as a modem to provide a broadband connection for laptop computers, netbooks or other computing devices.

Tethering for iPhones will be available when Apple releases iPhone OS 4 this summer.

AT&T?s take
AT&T, plagued by complaints about its network in areas with high iPhone penetration such as New York and San Francisco, is trying to discourage heavy data consumers through tiered pricing in an attempt to ease congestion on its network.

The timing of the announcement effectively capping data usage is significant, as Apple is expected to unveil the iPhone 4G next week.

On the record, AT&T is saying that it is all about making data plans less pricey.

?People want mobile Internet access and more affordable data plan options,? said Jenny Bridges, Dallas-based spokeswoman for AT&T. ?By creating these affordable new data plans, we?ll enable more people to enjoy the benefits of the mobile Internet, and give them more choices and control over their wireless data plan.

?In doing so, they?ll be even better equipped to mobilize everything in their lives?their favorite content, entertainment, social networks, online games, etcetera?which is the future of our industry,? she said.

?It?s made possible by the combination of faster wireless networks, smartphones with computer-like capabilities and the proliferation of innovative apps.? 

Ms. Bridges said that virtually everything previously done while sitting at a computer can now be done while walking down the street, standing in a grocery line or anywhere else, and that the new plans are designed to give a greater number of people the opportunity to experience these benefits.

?To provide more people with the opportunity to experience the benefits of wireless data, we are breaking free from the traditional one-size-fits-all pricing model,? Ms. Bridges said. ?With the new DataPlus plan, people can save up to 20 percent off their  wireless voice and data bill, and up to 50 percent off their wireless data plan, making smartphones affordable for new segments of consumers. 

?Our new, more affordable data plans will enable more people to enjoy the benefits of the mobile Internet while providing them with plenty of data to enjoy their favorite online activities,? she said.

Ms. Bridges said to keep in mind that 98 percent of current AT&T smartphone customers currently use less than 2 GB of data a month on average.

?Also, our smartphone customers get unlimited access to more than 20,000 AT&T Wi-Fi Hot Spots, and most can use Wi-Fi at home, in the office and elsewhere where available without counting against their monthly data total," Ms. Bridges said.

?And, if customers still need more data, we provide additional buckets at a reasonable price,? she said.

All about the bottom line
AT&T?s dilemma is well known. Having exclusive rights to the iPhone is a double-edged sword.

The users with the highest levels of data consumption are their highest-value customers. They spend the most on handsets, data plans, applications and other mobile content. They also interact the most with mobile ads and are more likely to engage in mobile commerce.

However, they also place a strain on the network, leaving AT&T open to the slew of ?There?s a map for that? commercials from Verizon Wireless.

According to Forrester analyst Charles Golvin, there are two reasons for AT&T?s change in data plans:

? Data represents future average revenue per user (ARPU) growth.

With voice ARPU declining, carriers need more of their customers to opt for data plans in order to hold the revenue line. At $30 per month, the ceiling on adoption is much lower than at $15, and the tiered pricing provides some upside among the next wave of data adopters.

? Preparation for the future.

As carriers prepare to launch next-generation networks that will deliver much faster data rates and enable users to consume significantly more data in a month than today's networks can deliver, they need a pricing strategy that will allow them to charge a premium and extract greater value from these networks.

Flat-rate pricing will prevent them from realizing that value and limits their future data revenue. Mr. Golvin said that this is the real underlying rationale for these changes.

Mobile Internet usage exploding
According to a November 2009 report from eMarketer, in 2008 there were 228.2 million mobile phone users in the United States, representing 75 percent of the population.

Those numbers climbed to 235 million (76.5 percent) last year and are projected to hit 242 million (78 percent) this year.

EMarketer projects those numbers to increase to 255.4 million (80 percent) by 2013 for a compound annual growth rate of 2.3 percent.

In contrast, eMarketer found that mobile Internet users are growing at a much faster pace.

There were 50.9 million mobile Internet users in the U.S. in 2008, representing 22.3 percent of the population.

Those numbers grew to 68.6 million (29.2 percent) last year and are projected to grow to 83.5 million (34.5 percent) this year.

From 2008 to 2013, when close to 40 percent of the population will surf the mobile Web, the compound annual growth rate of mobile Internet users in the U.S. will be 19.9 percent, according to eMarketer.

The fact that mobile Internet users are growing faster than mobile phone users in general, taken with the trend toward data-guzzling smartphones, has carriers concerned, both about the level of service they can provide and their bottom line.

In May, the NPD Group found that AT&T has the highest penetration of smartphones among U.S. carriers, at 32 percent of their total handsets sold.

Verizon Wireless was a close second at 30 percent, while T-Mobile USA and Sprint were both in teens.

For AT&T, this move is clearly designed to set up a more lucrative future?for itself, not publishers or marketers. It will be interesting to see if competing carriers follow suit.

?This is for 3G, so by lowering prices for a portion of its consumers, it may set the stage for when AT&T lights up its 4G network and wants to charge a premium for that,? said Noah Elkin, senior analyst at eMarketer, New York. ?AT&T needs to make sure the experience of using data is good enough so that more people will adopt it and sign on for value-added services?that?s the cyclical issue at the heart of it.

?It is more of a response to the cyclical trend away from voice and towards data,? he said. ?AT&T is trying to make up for lost revenue in one area by switching people from voice-centric plans to data plans.

?I don?t know that this will really be the answer for iPhone users in New York and San Francisco?I don?t think this is necessarily a response to those complaints, but rather AT&T is trying to get more people to start using mobile data.?