Did AT&T Just Call The Cops On The Mobile Party?

AT&T's newly unveiled wireless data caps are going over like a root canal with iPhone and iPad subscribers. But according to wireless solution providers, data caps could potentially impact the entire mobile ecosystem, including Apple.

One of the first impacts of the bandwidth could be a dampening of enthusiasm for mobile applications. As illustrated by the explosion of offerings on the App Store, Apple is quite proud of being the mobile applications pioneer.

Many developers have struck it rich on the App Store, but when wireless data is no longer all-you-can-eat, this Gold Rush might lose some of its momentum.

"Customers will be leery about using bandwidth-intensive apps for fear of AT&T's ridiculous over-charges, which means less apps will be developed," said Quy Nguyen, CEO of Allyance Communications, a telecommunications and hosting solution provider in Irvine, Calif.

There's also a psychological effect: AT&T claims that a tiny portion of its users consume a large chunk of its bandwidth, and even light users are now going to think twice before they start streaming live video or watch television on their iPhones. "I, for one will make sure I'm in a Wi-Fi area before streaming anything from my iPad," said Nguyen.

Bandwidth intensive apps are extremely popular, but Apple has rejected apps in the past for consuming too much bandwidth. When Sling Media's Slingplayer Mobile app first came out, Apple limited it to operating over Wi-Fi connections. The app, which enables Slingbox owners to view content streamed over the Web to their iPhones, was eventually approved when Sling Media designed it to lower its streaming bitrate during times of peak network load.

In a data-capped world, developers are going to be paying more attention to how much bandwidth their apps consume. Apple and AT&T could help by working to meter bandwidth usage on a per-app basis and giving developers clearer guidelines on maximizing efficiency, says Steve Beauregard, president of Santa Monica, Calif.-based mobility solution provider Regard Solutions.

"If they metered the usage on and app-by-app basis, the overall utility on the network would increase, because it would sort out the hogs from well designed truly useful apps," Beauregard said.

Next: Why AT&T's iPad Data Plans Now Make Sense

AT&T's introduction of data caps just two months after the iPad's launch also sheds light on why the carrier chose to offer iPad data plans on a month-to-month basis as opposed to a contract. The carrier also recently raised its early termination fee in advance of Apple's expected launch next week of the 4G iPhone.

Allen Nogee, an analyst with In-Stat in Scottsdale, Ariz., sees it as a sign that AT&T has now gained a critical mass of customers from its exclusive iPhone and iPad deals with Apple.

"For years, operators have been trying to find a way to wrangle in rate plans, but their fear was if they did it too soon, it might cut off the 'mobile Internet revolution' before it even got started," Nogee said.

But Nogee says there are risks involved with this approach that could cause it to backfire. First, although the mobile market is booming it is still in its infancy. Second, heavy iPad/iPhone data users are generally early technology adopters, and they've been especially strident in voicing their displeasure.

"While I'm sure it's true that 98 % of subscribers use under 2 GB a month, I bet more than 2 % THINK they use more than 2GB, and many more are probably close," Nogee said.

It could just be that AT&T is getting jealous as it watches Apple rack up quarter after quarter of record profits. Apple recently overtook Microsoft in market capitalization, the company's stock has doubled in the past year, and the iPad and forthcoming iAd platform may continue to fuel growth.

AT&T has done well with the iPhone, too, but it's also tasked with the massive capex of building its 4G network. Alan Gould, president and CEO of Westlake Software, a wireless solution provider in Calabasas, Calif., believes data caps are a sign that AT&T wants a bigger piece of the action.

"One has to stop and think which company has a better business model," said Gould. "Is it Apple, with fully marked up handsets and individuals spending thousands of dollars over time [ in the App Store] with virtually no overhead? Or is it AT&T, which bears the brunt of the costs of the network, technical support, and customer care?"