Should Apple Stop AT&T's Price Hike?
The nation's largest cellular carrier has a new pricing model in the works, and it's got “milk the customer” written all over it.
According to the Wall Street Journal, AT&T (NYSE: T) is exploring the idea of charging app makers for the data consumers use. App makers would reportedly be given the option to pay for the data consumers use, enticing them to acquire an app they may have otherwise ignored as they approach their data cap.
Theoretically, this might not sound like that bad of an idea. I think we all can agree that it would be better for a multi-million-dollar corporation like Rovio (the maker of the Angry Birds series) to receive a hefty monthly bill than it would be for individual consumers, who are already paying massive fees. Rovio may then respond by charging more for their games. But what would you rather do: pay a few extra bucks for the next version of Angry Birds, or pay more for data?
TechCrunch argues that this isn't an issue because a study by Validas (a company that helps consumers save money on their cellular plans) indicates that the top 5% of data customers use no more than 3.9 gigabytes per month.
That may be true. TechCrunch may also be right in its assumption that AT&T is using this strategy (billing app makers) to raise revenue. But this shouldn't come as a surprise; AT&T has been milking its customers for years. If the company can get away with voluntarily persuading app makers to pay for our data, it will eventually require all app makers to pay.
AT&T is, after all, the Comcast (NASDAQ: CMCSA) of the cellular world.
However, AT&T isn't to blame for the problem – consumers are. Consumers have been putting up with AT&T's price hikes and sneaky fees for several decades. Before cell phones became the norm, consumers put up with AT&T's lousy home phone service. And if it weren't for the fact that U-Verse sucks, consumers would likely put up with that service as well.
The same is true for Comcast or any other conglomerate that holds an unofficial monopoly on the market. While there are other cable options – and other cellular carriers – consumers continue to go back to the same companies they claim to hate. If they didn't, AT&T would have been forced to lower its rates years ago (or offer an unlimited data package like Sprint (NYSE: S), the poor competitor who can't seem to get ahead in this market).
AT&T's latest move – which, to be clear, has not been finalized – is just the company's way of flexing is muscles in a market it knows it commands. The cellular provider could not get away with charging HBO a fee for every hour U-Verse subscribers spend watching the network. Ultimately, HBO can afford to walk away because it has other options. But Rovio, as big as it may be, could not leave AT&T behind. In fact, if it weren't for AT&T, Angry Birds wouldn't even be here. Up until last year, the iPhone was an AT&T-exclusive device. And as we are all aware, Angry Birds' rise to fame occurred on Apple's (NASDAQ: AAPL) smartphone, not Android. Thus, Rovio will have to suck up whatever fee AT&T dishes out or risk losing out on millions of future download sales.
Collectively, app developers and publishers could ban together – and team up with big players like Electronic Arts (NASDAQ: EA) – to fight against any data charges AT&T may be tempted to employ. Unfortunately, AT&T is so big that it might not care if every app developer in the world threatened to abandon the service.
But it might care if Apple or Google (NASDAQ: GOOG) got involved. Both companies are getting rich off their respective app stores; not because the apps themselves are hugely profitable, but because people buy iOS and Android devices to take advantage of them. If app makers are forced to pay for consumer data usage, they will inevitably raise the price of new apps. In fact, the concept of 99-cent apps may go away entirely. And what about those free apps people love to download? You can kiss those goodbye. Few app publishers will be willing to give away an app that is costing them money every time it's downloaded.
If free apps continued to litter the App Store and Android Market, app makers would have to find another source of revenue to make up the difference. These sources may include additional advertisements, microtransactions, or the sale of personal information (our personal information) to advertisers. To be clear, many tech companies are already doing these things. But it will only get worse if AT&T goes through with its plan.
Apple may not be in the cellular carrier business, but it has every reason to worry about the new fee that AT&T is tempted to employ. It could hurt the App Store, make it harder for small developers to get started, and inevitably lead to higher costs for the consumer.
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