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AT&T Requires Data Plans With New Smartphones

AT&T will soon begin requiring new smartphone customers to buy into its $30 unlimited monthly data plan -- a move that brings it in line with rival Verizon Wireless, but whose timing some industry observers warn could raise eyebrows, given federal regulators' ongoing investigations into industry practices.

The change, which starts Sept. 6 will see the Apple iPhone's exclusive U.S. carrier mirroring the stance of the nation's largest carrier, Verizon Wireless, which makes data plans compulsory for Research In Motion's (NASDAQ: RIMM) BlackBerry devices on its network.

In an e-mail to InternetNews.com, AT&T (NYSE: T) said the move could help save smartphone owners from fretting about "unusually high bills," which would lead to a better user experience.

"Smartphone users tend to consumer a higher amount of data services, like advanced e-mail, mobile Web, applications, and more," the company said. "Being able to take full advantage of these features without having to worry about a fluctuating or unusually high bill generally leads to greater customer satisfaction, so effective Sept. 6, smartphone customers will need to subscribe to a data plan, as the vast majority of customers already do. For customers who don't want to commit to a data plan, we have many other great device options."

AT&T, however, is part of an FCC inquiry of the wireless industry as a whole, evaluating topics such as exclusive carrier deals and carriers' policies concerning mobile applications.

At issue is whether consumers are getting fair prices and the business interests of handset makers and wireless carriers are together unjustly influencing the types of products and mobile applications brought to market -- squelching innovative apps and designs.

In particular, the FCC is taking a close look at the roles played by AT&T and its partner Apple (NASDAQ: AAPL) in the recent decision to effectively block the Google Voice VoIP calling app from the iPhone's App Store.

On Friday, Google (NASDAQ: GOOG), AT&T and Apple all filed responses to FCC inquiries on the matter, with AT&T and Apple each saying in filings that Apple acted on its own in refusing to offer the app to end users -- and with Apple saying Google Voice hadn't been officially "rejected," but is still being reviewed.

Though AT&T essentially washed its hands over any wrongdoing in the Voice app decision, it did say in the filing that under an agreement with Apple, VoIP apps are blocked from using AT&T's cellular networks -- but those using Wi-Fi are considered acceptable.

The reasoning is that AT&T could lose significant revenue.

"In particular, both parties required assurances that the revenues from the AT&T voice plans available to iPhone customers would not be reduced by enabling VoIP calling functionality on the iPhone. Thus, AT&T and Apple agreed that Apple would not take affirmative steps to enable an iPhone to use AT&T’s wireless service to make VoIP calls," AT&T said in its filing.

Tricky timing

For some observers, AT&T's move to require smartphone owners to pay for the unlimited option isn't likely to do it any favors.

"The timing is bad with the FCC reviewing the Apple and AT&T replies to the rejection of Google Voice ... AT&T fuels the issue that handset technology is being restricted by carrier's customer contracts and manufacturer deals," Gregg Kail, a member of research and consulting firm Gerson Lehrman Group's technology, media and telecom council, said today in a research note.

Still, Kail said that by requiring data plans, it allows AT&T to compete with Sprint's "attractive" text and data bundle costing $99, and with Verizon's BlackBerry data plan policy.

Even as carriers increasingly offload heavy data users to their free Wi-Fi hotspots to relieve choking networks, they must also be sure not to encroach on their data plan revenue.

Additionally, the mandate does ensure that AT&T, which subsidizes the cost of the iPhone, recovers some of its expenses. "By now requiring a data plan with smartphones, AT&T ensures that the handset subsidy is recovered with mobile data usage and not cannibalized by Wi-Fi nomads," Kail wrote.

Deepa Karthikeyan, an analyst at Current Analysis, agreed said that AT&T's sales won't likely be lost and that the carrier may realize a slight increase in its customers' average monthly spending.

"This requirement is unlikely to cause a major change to the carrier's smartphone sales, since most people purchasing smartphones today subscribe to a data plan already and are unlikely to be deterred by this new requirement," Karthikeyan told InternetNews.com. "AT&T's Smartphone/BlackBerry data plans are all $30 and up anyway."

"This requirement may however help the carrier experience a slight uptick in data ARPU," Karthikeyan added.

Kail, however, suggested that AT&T might be better served with a different marketing strategy.

"A better approach would be for AT&T to offer a smartphone refund that is subject to a 90-day trial of a data plan. The 27-percent year-over-year smartphone growth (predicted) by Gartner research will be threatened if carriers do not incubate mobile data usage with thrifty smartphone prices."