1 More Reason to Hate AT&T

Things are going full throttle at AT&T (NYSE: T  ) , and I don't mean that as a compliment.

The telco giant announced Friday that it will begin to slow down the heaviest data drinkers on its unlimited wireless data plans. The move may shake out money-losing wireless customers, but it will also inevitably sink the carrier's already sullied reputation even deeper.

Come October, AT&T will flag 5% of its biggest consumers of data. Multiple notices will go out. An initial grace period for first-time bingers will be extended. In the end, the largest pigs at the data trough will be slapped with slower access until the next billing cycle begins.

In short, this buffet is about to begin discriminating against heavy eaters.

The end of "unlimited" as we know it
Throttling extreme users isn't a death sentence.

Netflix (Nasdaq: NFLX  ) has been one of the country's more beloved companies for years, yet even the video rental giant has made no bones about slowing DVD deliveries or limiting access to the newest releases for those going through a large volume of red mailers in any given month. It's just good business to keep higher-margin customers -- those going through fewer flicks -- happy, while irking those bleeding a smorgasbord dry.

Internet providers have also been penalizing data hogs through usage caps and reduced bandwidth speeds for years.

Even AT&T moved to tiered pricing for its wired connectivity this year when it decided to top out its originally unlimited data plans at 150 gigabytes of monthly usage for DSL customers and 250 gigabytes on U-Verse.

However, no one is forcing Netflix customers to stick around if they don't like the service. If the new pricing strategy doesn't sit well with a couch potato, canceling the monthly plan is a mouse click away.

Switching cable and satellite television providers is a bit hairier, but it's fairly seamless when we're talking about basic Internet access.

AT&T's policy shift over the weekend for its wireless customers is different, because most customers are on the hook for two-year contracts. Switching isn't easy, but switch they will now that Verizon (NYSE: VZ  ) is stocking Apple's (Nasdaq: AAPL  ) iconic iPhone and cheaper carriers are beefing up their Android armies.

We've been here before
AT&T is once again in the unsavory position of pioneering a customer-unfriendly practice.

It was AT&T that led the way in nixing unlimited wireless data plans for new customers last year. It was a shrewd move at the time, though Verizon Wireless eventually followed suit.

The saving grace at the time was that AT&T would continue to offer unlimited data plans to existing customers, even when they traded in their handsets for flashier smartphone models. It was a smart move in an otherwise dumb decision, giving loyal AT&T customers a good reason to stick around with Ma Bell when they were ready for an upgrade.

Everything's different now.

Investors probably don't get it. They think that AT&T is about to raise the temperature on those taxing its strained network the most. However, it's not just about shaking off 5% of its lowest margin customers. Once a buffet is no longer truly unlimited, it rattles the value perception of even the lightest data sippers.

Install weighing stations at the local Golden Corral and you'll find even the slenderest of patrons spooked on principle.

Where does AT&T go next, after all?

"Customers can also use unlimited Wi-Fi at home, in the office or elsewhere if available," AT&T promised last year in justifying its decision to stop offering unlimited data plans to new smartphone customers. Several months later, it redefined "unlimited" for its DSL customers.

Encouraging users to stream fewer videos or playing fewer online games isn't even going to fix AT&T's problem.

"But even as we pursue this additional measure, it will not solve our spectrum shortage and network capacity issues," the Friday missive concludes. "Nothing short of completing the T-Mobile merger will provide additional spectrum capacity to address these near term challenges."

Nice touch, AT&T. Trying to spin this move as a way to lobby for regulators to allow it to complete its purchase of T-Mobile is brazen. If anything, it's letting the country know why AT&T should be wielding less power given its pioneering ways in yet another anticustomer initiative.

Is metered broadband data as big a deal as Rick thinks? Share your thoughts in the comment box below.

The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of AT&T, Apple, and Netflix, as well as buying puts in Netflix and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz wonders if we're talking about 5% of all smartphone customers or all wireless customers. The difference is material, though the point is not. He does not own shares in any of the companies in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (14) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 01, 2011, at 2:30 PM, exeter17 wrote:

    If they have ATT for home connection its not unlimited either. And I suspect IT folks will crack down on people hammering office connections.

  • Report this Comment On August 01, 2011, at 2:58 PM, awlabrador wrote:

    Verizon announced back in February they'd be throttliing speeds for their heaviest users, http://news.cnet.com/8301-13579_3-20030514-37.html .

    Old news for Verizon. AT&T is following suit. Hate them both, if you want.

  • Report this Comment On August 01, 2011, at 3:07 PM, ElCid16 wrote:

    Yeah, partner - you're not really uncovering any "earth shattering" evidence. Verizon has been doing this for a while. Sprint is the last man standing who isn't doing this.

    "Verizon said in February, ahead of the launch of Apple's (NASDAQ:AAPL) iPhone 4, that it would begin throttling the data speeds of its the top 5 percent of its heaviest unlimited data users."

    http://www.fiercewireless.com/story/att-will-throttle-unlimi...

  • Report this Comment On August 01, 2011, at 3:12 PM, TheeShawn wrote:

    AT&T is one of the worst companies out there imo.

    I will never do business with them again and haven't for 6 yrs now.

  • Report this Comment On August 01, 2011, at 4:15 PM, almypal2012 wrote:

    Well I still love AT&T I don't care what u folks think! They still have the best game in town! If u don't like AT&T go somewhere else, but I guarantee u they will be worse! Verizon and Sprint suck here in Texas! AT&T is definately better!

  • Report this Comment On August 01, 2011, at 4:33 PM, chadscards1274 wrote:

    Not that big a deal, when we are talking about 5% of the users and it's not as though they are being cut off once they reach a certain limit but their connection speed will change. If you are one of the 5% you have to make choices otherwise this will likely go unnoticed.

  • Report this Comment On August 01, 2011, at 4:44 PM, clutch410 wrote:

    AT&T is just doing what Verizon has already done.

    IMO Verizon is the absolute worst company on the planet. Besides the ungodly customer service through FiOS and the phone service, their mobile phones are always behind the times. AT&T always has the better phones. On top of that, whenever you walk into a Verizon Wireless store you are bombarded with sales people trying to upsell you products you have no need for and they don't stop when you say no.

    I have dealt with both companies and AT&T is light years ahead of VZ in customer service and mobile phones. Also, I've had way more dropped calls on VZ than T.

  • Report this Comment On August 01, 2011, at 6:44 PM, rafarules wrote:

    sounds like you're pissed at&t and verizon will no longer subsidize heavy traffic netflix streaming users? uh-oh - there goes the growth momentum story for netflix. down goes the reed hastings fairy tale.

  • Report this Comment On August 01, 2011, at 7:01 PM, rfaramir wrote:

    "pioneering a customer-unfriendly practice" is a very good way to put it.

    I was skeptical of the unlimited plans to begin with. I'm proved right, and I'm still not happy, LOL!

    Love my iPhone (4), AT&T is just begging me to find another carrier... I'd love to go back to Sprint if only I could keep my iPhone.

  • Report this Comment On August 01, 2011, at 7:39 PM, AfoolwondersNot wrote:

    I have tried to avoid AT&T by any means available.

    In my experience they are one of the worst companies in existence.

    If it weren't for a monopoly they have at my place I would have zero to do with them. As it stands I am forced to have a dry loop through them.

    Recently I told them I was switching to Xfinity if they did not lower my broadband bill from $25 a month to $15 a month (what most of my neighbors pay for the same service from AT&T). They agreed but only because I was fortunate enough to know how to talk to them. For those who don't (I expect the majority of users) they will basically be stuck with whatever is handed to them by the company.

    I will do what I can to stay as far as East is from West away from this company.

  • Report this Comment On August 01, 2011, at 7:58 PM, CajunRon50 wrote:

    So what is Mr. Munarriz's solution. Have AT&T, Verizon etc continue to feed the pigs all they want to eat at no additional costs to them and at the expense of the company owners (me and the other stockholders)?

  • Report this Comment On August 01, 2011, at 11:23 PM, ASharpEdge wrote:

    I want to share something that this article seems to be unaware of. Anyone ever heard of Comcast cable company??? I am not sure of their nationwide market share, but they are big here in northern Illinois. Let me share a short story. Comcast is the one who pioneered the act of kicking its top users; Not AT&T, nor was it Verizon. How do I know....I used to have Comcast for almost 8 years from early 2001 until late in 2008. My wife and I got a letter in the mail from Comcast in Nov. 2008 warning us that we were using too much bandwith. We could not believe it. We thought we had unlimited usage. I called and tried to talk to them about the issue. Since I apparently did not have unlimited usage I attempted to find out how much "bandwidth" (Gigabytes per month) I was allowed to have. They could not tell me! There was no set number they used at all!! Just if you used more than others you got FLAGGED! Comcast was trying to apply something I cannot remember exactly what it was, but it was like we were abusing our usage...lol haha. Another thing that was funny was a phone call we got that was just come number that was not Comcast. The voice at the other end of the line said he was a Comcast enforcement something or other. He told me to stop using so much internet. I said "who are you and under what authority are you saying this?" I felt like I was talking to the secret service! He would not tell me who he was, where he was calling from, nor what his phone number was so I could talk with his supervisor. The letter had said that if we had two back to back months of being in the top 1% lof healvy users that they would disconnect us and we would be banned for a whole year from using Comcast. So, December we passed without being in the top 1 percentile of heavy users. Though Jan. 2009 I again used too much internet. Than February came and suddenly we got disconnected with no advance notice at all. The reason they did this was to free up bandwidth for less heavy users. I did some research and now realize Comcast had been doing this since at least 2003, way before these other guys. A lawsuit was brought against Comcast, and they scored a victory in that it was determined the FCC did not have the juristiction to stop them. This cleared the way for AT&T and Verizon to do the same. I think the ones who are cutting heavy users and the likes will be losers in the end. As time goes on internet usage is CLEARLY going to INCREASE!

  • Report this Comment On August 02, 2011, at 11:40 AM, rodmrose wrote:

    AT&T's customer service is abysmal -- and so is their pricing. No wonder local governments in Indiana are dropping AT&T, saving thousands of dollars by doing so.

    The only thing that might get AT&T's attention is a boycott -- or bankruptcy. They deserve both.

  • Report this Comment On August 02, 2011, at 9:23 PM, frebra wrote:

    As a current user of AT&T (and prefer them over Verizon), everyone should read the financial reports of AT&T and Verizon, especially compare the FCF's. It can immediately be seen that Verizon financial debt & expenses is comparible to the US Gov't. It apparently has to 'borrow' money to pay their dividends. Verizon's "popularity" also seems obviously regional, meaning that it works somewhat better in some places than others. I experienced many 'dropped calls' with Verizon before switching to AT&T (no dropped calls except when talking with a Verizon system, yet). Pricing is also factor. Make the comparison as well as Customer Service. Do some personal research and trials, You will be amazed ! !

    Not satisfied ? Switch to Sprint, Comcast, T-Mobile, Windstream, etc. All are far above Verizon in every way.

    Do some personal research, then see the difference, you will be amazed ! I had Verizon for 4 years before I realized my mistake and waste of money.

    Good Luck

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