Does AT&T's New Data Plan Make You Think of an Israeli Daycare Center?

It did for a reader named Peter Rice. “I was recently reading about AT&T’s new service plans for the iPhone [see an overview here], and immediately thought of the story of the day-cares that started fining parents if they were late, and that the problem actually got worst.”

He’s referring to something we wrote in Freakonomics. It’s based on a paper by Uri Gneezy and Aldo Rustichini about a set of Israeli day-care centers which started fining parents who were late in picking up their kids. The problem was that the fine was so low (about $3 per occasion) that it backfired: late pickups actually rose, apparently because the new incentive (a cash fine) was weaker than the old incentive (the guilt of being late).

Peter continues:

My impression is that AT&T is currently getting a lot of bad press because its network can’t handle all of the data that the iPhones are trying to transmit over their network, so their pricing strategy is in response to that. Nonetheless is it possible that it will backfire? Are there a bunch of users out there that have essentially limited their usage because they realize that it bogs down the network and are limiting themselves basically by guilt? The pricing scheme seems a bit lopsided to me with a tenfold increase from 200MB to 2GB for just $10. Is it possible that some of those users will pay the extra $10 and then feel entitled to hog a lot more data? Or is there something about this scenario that makes it very different from the day-care situation, economically speaking?

  1. I’d be surprised if even a handful of phone customers have been feeling “guilt” about hogging too much data; raise you’re hand if you’re one of them; that said:
  2. The $10 incremental fee for so much more data does seem cheap enough to encourage some customers, especially new ones, to sign up and then, since they’re already paying for a vast amount of data, use much more than they might have otherwise. People eat more food at an all-you-can-eat buffet; they consume more health care with all-you-can-consume insurance plans; there’s no reason to expect they won’t gobble up more data too when they’ve already paid for it.
  3. On the other hand, more price-sensitive customers (or those who accept AT&T’s rhetoric that most existing customers fall far short of the heavy-data-user cutoff) will opt for the cheaper plan, which would limit their consumption.
  4. But the tricky part of a bright-line tiered pricing strategy is that it asks people to put themselves firmly into one box or another, rather than paying a la carte. And once you put people in a box of any sort, one of the first things they want to do is smash down the walls.

Amy

I've asked a bunch of tech savvy friends. They were planning to stay with the unlimited plan because they had no idea how much data they were using. In fact, most people can save money by switching. I don't expect people to use more than they currently are because it always was unlimited. The unlimited isn't new, so it isn't creating a new behavior. But I would expect people to reduce their usage on a new plan because they don't know how much they have left.

I've been telling everyone that the lower plan is enough. If you go over occasionally, you will still save money over paying for unlimited every month.

KarenS

For people who have no idea how much data they're using - you can log onto AT&T to find out. They even provide a handy bar graph for monitoring your monthly usage.

I agree that the limited plan will probably save most people money. That said, I'm keeping my unlimited plan as long as AT&T will let me.

Matt

I would just like to say that I really like the new plan. I needed unlimited texting, but not so much data, but the way the old plans were structured, the best way to get that was to shell out $50 a month for unlimited text and data, even though I was only using a few MB per month on the data plan to look things up on the go. With the new plan structure, I was able to pay $20 for the unlimited texting and $15 for the 200MB, saving me $15 per month without any change in my usage. It's nice to see AT&T actually do something right for a change.

Bobby G

You can download AT&T's Mywireless app onto your iPhone and log in using your website login to see good usage stats on minutes, texts, and data. Since this is on your iPhone you can check usage anywhere, although I suppose you need to use a tiny bit of data to see how much data you're using :).

Chey

Think Milton Friedman here (or Heinlein if you prefer) and remember there is no free lunch. Odds of users going over their monthly data plan @200mb or even @2gb are high, and of course, at&t will gladly charge a hefty amount when it happens. If you are currently grandfathered into the unlimited data plan, I would strongly advise against being frugal with your data package when upgrading to the new iphone 4. Less [money in the short run] is more [money in the long run].

Chey

If you go with the 200MB plan for $15, you will be charged $15 immediately if you go over...then you are up to the same cost as the unlimited. If you do the 2GB for $25 you will be charged $10 for each 1MB you go over, which is more than the unlimited plan. Unfortunately at&t doesn't have a magical data fairy to shut iphone data off when they hit their cap...that would save people money and employees a lot of headache :)

Maz

I think that AT&T could offer free ice cream and people would complain.

I have the iPhone and happened to be tracking my data usage the last 2 months. 153 and 148 mb per month. I will be saving $15 a month for doing nothing different.

Since, I can't imagine them giving $15 dollars a month to 65% of their iPhone customers and $5 to most of the rest with no offset, I would expect AT&T to offer an app that facilitates tethering right after most of their grandfathered customers have had to switch to new contracts. The vehicle for collecting payment on the extra data usage will already be in place.

art

This policy change coincides with iOS4 coming out for iphones... this new OS will allow for multitasking.... my guess is that now, people how were so called data hogs, will be more so with multitasking as you can be streaming music, video and doing other stuff at the same time.... while now you can only really do one of these at a time.... my guess is that many will be paying over usage fees...

JeremyN

I can tell you its actually not that hard to hit 2gb of data without even tethering. I average 1.4-1.5gb a month and I don't even use Netflix (will be available in July). The reason AT&T did this is because there are new data intensive apps (Netflix being one example, as well as tethering being allowed as far as I know) and they want to be able to capitalize on the higher data use. They also don't want to upgrade the network infrastructure that should have been updated years ago.
I've had 3 iPhones and would have bought the new one when it comes out, but I won't deal with that data limit. I'll be moving my company to a different provider soon and I know several others will be as well.

anusheh

Wondering if we will see the Israeli daycare effect on Chase's new overdraft protection policy. Chase must now be given consent to approve purchases of customers with insufficient funds.

Bob

This question is ridiculous and reeks of somebody trying to appear smarter than they are. I have done no research into the matter, and yet, I am able to unequivocally state that no such self-throttling of data usage occurs. Why? There IS NO GUILT involved. In the Israeli day care example, parents were embarassed to show up late because it reflected poorly on their commitment to parenting. People don't want other people thinking they're bad mothers and fathers. On the other hand, people could care less about being labeled data hogs - and, even if they did dislike such labels, the impersonal nature of mobile phone service/billing easily negates any desire to avoid being chastized. Nobody cares if some verizon employee hundreds of miles away sees their name on a computer and associates it with a high rate of data consumption. It's too impersonal for there to ever be any consequences.

That said, some of the commenters have good points, re: 2gb subscribers making sure they use their entire data alotment, etc. The new tiered data pricing certainly gives rise to some interesting economic questions, but those questions are entirely different than those raised by the non-analogous israeli day care model.
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