Active smartphone users better get used to an ugly buzzword: throttling.
Back in October, AT&T (T) began slowing down its most voracious data users. Wireless customers on unlimited plans who find themselves among the top 5% of bandwidth hogs are being advised that their online speeds will be dramatically reduced for the balance of their current billing cycles.
This, in a nutshell, is throttling.
Other companies offering "unlimited" plans have resorted to throttling in the past to keep abusers in line. If you were going through more than a dozen DVDs a month on Netflix (NFLX) in its optical disc prime, it wasn't a coincidence that you began to find those harder-to-get new releases less available. Many hyperactive renters reported shipping delays.
You don't usually see this in the real world. Unlimited is unlimited. No cruise ship is going to cut you off at your fourth dessert. Walk into a buffet and the operator isn't going to refuse your request for a fifth clean plate.
However, it's clear that wireless carriers want to curb the bandwidth consumption of their heaviest data eaters. These individuals are burdens on overtaxed networks that carriers can't build out quickly enough to meet booming demand. AT&T and Verizon (VZ) even stopped offering unlimited data to new customers two summers ago, but the decision to grandfather in existing subscribers -- even as they upgrade their phones -- has left the carriers resorting to installing speed bumps.
You Are the 95% ... or Are You?
Maybe you don't care. You don't spend your days glued to your smartphone streaming Netflix or downloading chunky video files. You only hit the Web to listen to Pandora (P) during your morning commute, play a few online games, and watch YouTube videos when something goes viral.
There's no way you can be one of AT&T's biggest data offenders, right?
Well, reports are surfacing this week of folks getting downshifted from typical Internet surfing speeds after going through just 2 gigabytes of data in a billing cycle.
This is not an insubstantial number. However, it has to feel ironic to someone paying $30 a month to be slowed down dramatically after going through 2 gigs of data in any given month. After all, new customers -- the folks who arrived too late to take advantage of AT&T's unlimited data plans, can pay the same amount for 3 GB of data.
Sure, they get cut off completely after that. They have to buy more data. However, as anyone who's been throttled can tell you, when your network's already slow download speeds become tortoise slow, there's really not a lot you can effectively do online.
Solutions Aren't Fair
AT&T is advising active smartphone users to switch to WiFi when it's available. Sure, they may be paying for unlimited data, but if they have access to even faster WiFi around the house or in a public WiFi venue they can lean on that provider to avoid running on Ma Bell's tab.
It's reasonable advice, but it wouldn't fly in our buffet example.
After all, let's say you're at Golden Corral after paying for a lunchtime buffet. The manager comes over and asks you to consider taking a break -- heading out to the Chinese buffet at the other end of the strip mall -- and then coming back when you're stuffed.
No, it's not right.
AT&T's other tactic is to have the 5%-ers consider moving to tiered pricing plans. That 3 gigabyte plan for $30 a month may sound pretty good to those slapped with a school speed zone after 2 gigabytes of monthly surfing activity.
However, if AT&T effectively ships off the more burdensome users to tiered plans or rival carriers, who becomes the new 5%? Sooner or later, it's going to be you.
Phoning It In
AT&T may very well scrap unlimited data plans at some point. Sprint Nextel (S) is the only carrier among the country's three largest providers that continues to offer unlimited plans to new customers.
However, Sprint's been losing money for years. Unlimited smartphone usage may be part of its current marketing message, but if it becomes a haven for the biggest data abusers Sprint's not going to be any closer to becoming a profitable company.
It's clear that AT&T has bigger fish to fry. Despite the growing popularity of smartphones, analysts see revenue at AT&T growing by just 1% this year and 2% come 2012. Anything it gains on the smartphone or U-verse side of the business the telecommunications giant seems to be giving back through its fading wireline business. AT&T's plan to acquire T-Mobile last year has been effectively squashed.
AT&T's top brass may try to justify taking its troubles out on its seemingly heaviest users, but consumers aren't going to like it. They love the value proposition that "unlimited" offers, even if they're light bandwidth sippers. As news begins to spread of AT&T's tightening clamps on unbridled smartphone surfing, the carrier may realize it's going to lose more than the 5% it wanted to cut loose.
Your move, AT&T.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Netflix.