Ina Fried

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As Unlimited Data Plans Go Away, Consumers Struggle to Make Sense of Their Data Use

For smartphone customers, the unlimited data plan appears to be on its last legs.

AT&T stopped offering such plans to new customers last year, while T-Mobile has put restrictions on its unlimited plans and Verizon is set to end its unlimited data plans soon. Sprint remains the holdout among the majors, continuing to offer largely unlimited data options for most of its smartphone lineup.

For many people, the shift means at least a headache, if not ultimately higher bills.

Unlike minutes on the voice side, which are fairly easy to get your head around, it’s not so easy to understand how much data you’re using. On the data side, users are most often asked to sign up for a plan that covers a certain amount of megabytes or gigabytes per month, but those numbers don’t mean much to the average consumer.

Phone carriers have come up with a variety of tools that allow users to estimate how much data they might use based on their activities. Verizon Wireless, for example, has a calculator on its Web site, as do AT&T and T-Mobile. Some carriers offer other types of estimates of how much use one can get for a particular tier of data.

Most carriers allow customers to track their usage in real time or receive text message alerts when they hit a certain threshold, or both.

But even with such mechanisms, data usage can be uneven and unpredictable. It’s further complicated by the fact that some applications use way more data than others. Watching high-definition video over the cellular network is one of the biggest data hogs, but downloading apps, streaming audio and sending big files can also gobble up data quickly.

Data usage rates also depend on how the particular program is written. So two programs doing seemingly similar tasks might consume widely different amounts of data.

Carriers also vary how they handle things once users hit their usage threshold. Most carriers charge an overage fee for each additional gigabyte or other amount of data users consume beyond their set limit. T-Mobile, on the other hand, doesn’t charge overages; instead it significantly ratchets down the speed of data transfers once users hit their paid-for limit. T-Mobile customers also have the option of upgrading to a higher rate plan to keep surfing at full speed.

All of that is a big reason why consumers like unlimited plans, whether or not they use a ton of data. Recent studies show that even those with tiered plans tend to use only a fraction of what they are paying for. To some extent that may have to do with the fact that consumers generally don’t know how much data they are using and are probably trying to err on the side of caution.

“Consumers are generally risk averse and generally overbuy to get a predictable monthly bill, even though a variable priced option would save them money over the course of three or twelve months,” said analyst Roger Entner.

Indeed, while the top couple percent of customers use more than a gigabyte of data per month, the average consumer uses far, far less, according to various studies. A recent study by Validas showed that while average use was around 300 to 400 megabytes per month, that number was raised significantly by the heaviest users. Some 60 percent of consumers used less than 200MB per month (see chart), while the median usage level — as opposed to the average — was slightly less than 100MB per month.

“This discrepancy between average data use versus most people’s data consumption points to a data hog minority whose extremely heavy usage rockets up the overall average and inflates the apparent necessity of bigger data plans,” Validas said in a blog post earlier this month.

The move away from unlimited data packages, though annoying to consumers, was inevitable, most carriers insist, given recent explosions in data traffic and the rise of faster networks and more capable devices, as well as the discrepancy between typical users and those consuming the most data.

And things continue to shift toward even heavier usage. While T-Mobile’s average user may only use a little over 100MB a month, the typical smartphone on the company’s faster 4G network is used to consume more than 1GB a month. Entner notes that while only a couple percent of customers use multiple gigabytes per month today, next year probably some 6 or 7 percent of consumers will be using more than 2GB of data.

There are alternatives to the current usage-based pricing beyond just an unlimited spigot. Users could be charged based on how fast a connection they use, as opposed to how much data they consume. More complicated to set up but potentially more appealing to consumers would be some sort of service-based pricing, offering unlimited use of certain services.

While some say moving away from unlimited pricing is just a way for carriers to make more money, others see an opportunity for customers to benefit as well. If done right, such service-oriented pricing could open some doors, Qualcomm Internet Services President Rob Chandhok said.

“After voice and SMS, what is the next most-used service?” Chandhok said. “Probably Facebook or Twitter. If you gave an 18-year-old (paying their own bills) a choice between voice plus $30 for ‘unlimited’ (data) or voice plus $5 for Facebook and Twitter, you might be surprised.”

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