March 5 (Bloomberg) -- AT&T Inc.’s decision to set caps on heavy users of wireless data is infuriating to some people -- and a boon for startups like Onavo Mobile Ltd. that help reduce consumption.
The 20-person company, based in Tel Aviv and San Francisco, makes a free mobile application for Apple Inc. and Android devices that compresses consumers’ mobile downloads, so they use less data. In the past few weeks, Onavo’s daily download rates have risen “hundreds of percent,” Chief Executive Officer Guy Rosen said in an interview.
Onavo is just one of many companies U.S. consumers are turning to in an effort to avoid overage fees and getting their network speeds throttled. Another startup, Sunnyvale, California-based XVision, has seen weekly downloads of its data usage-tracking app, called DataMan, jump 70 percent since mid-February, said Johnny Ixe, the founder of XVision.
Venture capitalists are sensing an opportunity. In January, Onavo raised its second round of funding, bringing its total to $13 million. Its investors include Sequoia Capital, Motorola Mobility Ventures and Horizons Ventures, the venture capital arm of billionaire Li Ka-shing.
“The carriers are starting to force you to look at your data, and you see a lot more people looking to save money,” Brian Katz, a 42-year-old engineer in Oakland, New Jersey, said in an interview. Katz uses Onavo and Boingo Wireless Inc. to reduce his AT&T and Verizon Wireless bills.
If Katz wants to download a photo, the image first goes to Onavo’s servers, which shrink the file before sending it on to a carrier’s data network.
Boingo is a Wi-Fi service that allows Katz to send photos and use social network Facebook Inc. on a mobile device without tapping into his cellular data plan. In the fourth quarter, Boingo’s subscriber base jumped 28.5 percent, according to a transcript of the company’s earnings conference call.
“The reality is, the only sustainable model for the mobile Internet is where there’s a price tag,” Onavo’s Rosen said. “The supply is limited. Within this reality, there’s a dire need for transparency and control, and for consumers to squeeze as much as they can.”
Boingo is a paid service, with plans starting at $7.95 a month. Onavo said it plans to introduce paid features later this year.
Many wireless carriers are ratcheting up their rates and capping usage in response to skyrocketing mobile data use, which is putting pressure on their networks. The strain on the global mobile networks more than doubled last year, as consumers began watching more mobile video and using tablets, according to networking-equipment maker Cisco Systems Inc. The traffic will increase 18-fold by 2016, reaching 10.8 exabytes per month, the company said.
An exabyte is equal to about 250 million DVDs.
Last week, AT&T said customers will experience slower access speeds if their data usage exceeds 3 gigabytes a month. For customers with so-called long term evolution, or LTE, devices, the limit is 5 gigabytes a month, the Dallas-based carrier said. The move means millions of longtime customers may need to deal with reduced speeds at some point in their billing cycle, a nuisance that AT&T is betting will persuade them to switch to its more expensive plans.
Carriers are struggling to keep up with the rising demand because the amount of airwaves they have to send images and e-mails between callers remains limited. Last year, AT&T tried to acquire T-Mobile USA in large part for its airwaves, or spectrum. It ended the $39 billion merger amid regulatory obstacles.
The carriers already have begun raising prices, to discourage heavy use and recoup spending on their networks that’s needed to support escalating traffic. Tim Horan, an analyst at Oppenheimer & Co., expects U.S. service providers to increase prices on wireless contracts at a faster pace in the coming years. An average wireless subscriber’s bill will rise by 5 percent -- or $2 -- a year, he said.
“They are going to either charge for usage more or increase the minimum amount” paid for a data plan, Horan said in an interview.
Throttling offers another way to slow down traffic growth. The advent of throttling, or slowing down service for heavy users, is somewhat akin to the oil crisis and gas rationing of the ‘70s, Roger Entner, an analyst at Recon Analytics in Boston, said in an interview.
“The wonderful thing about smartphones is that they are computers in your hand, but they are like cars from the ‘50s and ’60s, real gas guzzlers,” Entner said. “Now developers and manufacturers have to be more aware and economical.” Consumers will have to get in on conserving usage as well, he said.
The carriers are walking a fine line in trying to balance their business needs and not alienating consumers. On Feb. 24, Onavo started dontthrottle.us, a website where hundreds of consumers have reported their experiences of being throttled. In February, user Matt Spaccarelli sued AT&T for throttling his data usage and won in a small claims court in Simi Valley, California. He has since become something of a spokesman for and hero to the throttled.
Steve Barker of Saint George, Utah, is another angry consumer. He has an unlimited plan with Sprint.
“The reason they are struggling is because they are purposefully restricting spectrum to keep prices high,” he said in a telephone interview.
AT&T’s new data caps only apply to existing customers with contracts that include unlimited data, which the carrier has stopped offering to new subscribers. The new limits represent a change to a previous AT&T policy of reducing speeds to the 5 percent of unlimited users who used the most data.
Instead of offering unlimited data, AT&T now sells so-called tiered plans that include a certain amount of data at various price points. In January, AT&T raised those plans’ prices by $5 a month and increased the capacity allowances.
AT&T’s tiered data plans cost $30 a month for 3 gigabytes and $50 for 5 gigabytes, plus $10 for every gigabyte over those limits. The longtime customers with the old unlimited plans typically pay $30 a month. To reach 3 gigabytes, users would have to stream about an hour of video or 3.5 hours of music, or post photos to social network Facebook about 300 times every day, according to AT&T’s data calculator.
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