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Wireless Data: The End of All-You-Can-Eat?

AT&T's switch from unlimited plans may set the tone for U.S. carriers

When AT&T (T) announced on June 2 that it would stop offering an unlimited wireless data plan, it said 98 percent of its customers would save money with the change. About two weeks later, Verizon Wireless Chief Financial Officer John Killian said the largest U.S. carrier may soon follow suit and switch from all-you-can-eat data programs to tiered pricing.

The savings for half those AT&T customers, however, may disappear by 2013, says independent wireless analyst Chetan Sharma. Here's why: Under the new plan, 2 gigabytes of data will cost $25 a month; each additional GB will cost $10. (The unlimited plan, still available to customers who signed contracts prior to the switch, costs $29.99.) Sharma, who has consulted for Motorola (MOT) and Qualcomm, predicts the average customer will consume 4 GB of data a month within three years, up from 150 megabytes in 2009 and an estimated 320 MB by yearend, noting that 4G networks, fully in place by mid-2012, will accelerate consumption.

Increasingly versatile and powerful devices such as Apple's (AAPL) iPhone and iPad and HTC's EVO are encouraging users to suck up more data. Verizon will begin selling the iPhone in January, as reported exclusively by Bloomberg News. AT&T, the No. 2 carrier in the U.S., says listening to 2.5 hours of streamed music a day adds up to 2.2 GB of data per month. Streaming a feature-length film to a mobile device eats up about 200 MB. "The downloading of video is really driving data usage," says Greg MacDonald, an analyst at National Bank Financial.

AT&T's data-cap plan remains the exception in the U.S., but the billing method is commonplace in Europe. The move comes as landline revenues are shrinking and data is providing a fast-expanding portion of AT&T's bottom line. Wireless data revenue rose 30 percent for the company in the first quarter, to $4.1 billion, while landline voice revenue fell 12 percent, to $7.5 billion.

Sprint Nextel (S), the third-largest U.S. wireless carrier, says it has no immediate plans to change its pricing. "It's inevitable that most of the U.S. carriers will switch to tiered pricing as the usage continues to go up," says MacDonald.

The bottom line: As mobile data use per customer accelerates, other U.S. wireless providers are likely to follow AT&T and change their pricing policies.

Bensinger is a reporter for Bloomberg News.

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