AT&T’s Outrageous iPhone & iPad Rates

| Ted Landau's User Friendly View

It would not surprise me if AT&T Wireless some day issued a press release that read: “As part of our endless quest to squeeze out every potential dollar while pushing the envelope of legality, today we announce that roaming fees will be charged whenever a customer connects to our data network while outside of their home. After all, if someone is not at home, they’re roaming around. Further, if customers are in an area where there is no AT&T service, they will be charged US$1.00 per minute for continued attempts to connect to the network.”

If this sounds like sarcasm, that’s because it is. But not by much. The reality is remarkably close to the absurdity of this imaginary press release. How many ways does AT&T overcharge its wireless customers? Every possible way. 

ATT

To be fair, AT&T is not alone. Verizon and the other major carriers are almost as bad, and occasionally worse. But, having used AT&T for my iPhones since 2007, I have by far the most experience with this company. So I chose to focus on AT&T, with occasional references to Verizon. [Note: Neither AT&T’s not Verizon’s websites make it easy to figure out what their various plans cost. This is probably deliberate on their part. Thankfully, Apple provides a useful comparison chart of iPhone plans.]

Where to begin? It’s hard to decide. Let’s see….how about text messages?

Text messages

Consumer Reports summed up the situation quite nicely:

“Text messages take up almost nothing on their networks, but the carriers are charging much more for them than they do for phone calls, which use up a heck of a lot more space. The rates for texting are completely outrageous.”

Or, to put in another way, the profit margin for text messages is 99.96% (or higher!). Gizmodo calls AT&T’s latest text message plans ” an outrageous, gigantic scam” that “overcharges you by 10,000,000 percent. Literally.”

The pricing has led to those horror stories where a family gets shocked with a $10,000 phone bill, thanks to all the text messages their teenage daughter has been racking up.

The phone company’s solution for avoiding such gigantic bills is to switch to an “unlimited” text messaging package. Currently, for this unlimited service, AT&T charges $20/month for a single iPhone ($30/month for families).

My main question is: As AT&T is presumably making a profit at $20/month, no matter how many text message you send, how do they justify the exorbitant per message rates? Never mind, it was a rhetorical question.

While the unlimited plan may be a reasonable option for very frequent text-ers, it’s still a vast overcharge compared to what it costs AT&T for sending those texts. Further, as of last August, AT&T eliminated a middle ground alternative: $10/month for 1000 messages. For people who text often but never go over 1000 messages, AT&T now forces you to choose between the per message rates of $.20/message ($.30 for MMS messages) or the unlimited option for $20/month. At per message rates, you reach $20 with 100 SMS messages.

In other words, the elimination of the $10/month fee results in a higher cost for all users who send/receive between 100 and 1000 messages a month. My guess is that this is a huge chunk of AT&T customers. [Verizon still offers 1000 messages for $10/month.]

Thank goodness for Apple’s iMessage. With it, you can send text messages to other iOS users for free, bypassing AT&T altogether.

Monthly data plans

When you get an iPhone, you are required to sign up for a data plan. This is what provides your Internet access over 3G. AT&T’s cheapest plan is $20/month for 300 MB, with an additional $20 for each additional 300 MB. At this rate, using 3GB in one month would cost you $200! Not to fear, you can instead sign up for a 3GB/month plan for $30.

Again, I am left to wonder: How does AT&T justify the $20/month plan? Why should you have to pay a rate that amounts to per GB charge of more than six times the $30/month rate just because you use the service less? I can understand a small rate difference, possibly to account for a minimal overhead. But not one that could result in thousands of dollars per year for the same usage. Forget it, this was another rhetorical question.

As with text messaging, it’s the customers in the middle that get hurt the most. If you use more than 300 MB of data in a month, the $30/month plan is cheaper than the $20/month plan. But unless you are using closer to 3GB per month, you are getting overcharged for the data you use. Put it another way, if AT&T’s 300 MB/month plan were at the same percentage rate as its 3 GB/month plan, the lesser plan would cost only $3/month.

The situation is similar with iPad data plans. You can choose between $15/month for 250 MB ($60/GB) vs. $30/month for 3GB ($10/GB). [Verizon is more reasonable than AT&T at the low end. Its least expensive rate is $20/month for 1 GB.]

You might be wondering if you can reasonably expect to get by with just 250 MB in a month. The answer is: Not unless you are very careful. I wound up using my entire 250 MB when I launched Pages and it uploaded a single Keynote file that was waiting in iCloud!

The situation with iPads is likely to only get worse as people begin to use LTE networks. With attainable speeds that rival Wi-Fi, users may be tempted to take advantage of the convenience of LTE, even if Wi-Fi is available. Beware! If you start using LTE for tasks such as streaming HD video, you’ll wind up running through GB of data in no time.

Unlimited restrictions

Speaking of data plans, early iPhone owners who opted for (and remain “grandfathered” in) AT&T’s now defunct “unlimited” plan are finding just how far AT&T can twist the definition of “unlimited.” In an effort to coerce users to abandon the unlimited plan, AT&T throttles the data speed of anyone on the unlimited plan who uses more than 3 GB per month. They still get the promised unlimited amount of data, just not at a speed that is usable. Nice.

AT&T justifies this by claiming that only 5% of users exceed the 3 GB limit. My question is: How does AT&T reconcile their claim with its rate plans? Specifically, the 3 GB/month plan is the cheapest one that makes financial sense, the one that users will feel almost forced to select. Why structure rates so users are compelled to select a data plan that (at least according to AT&T) should be more than almost anyone needs? Why not offer a cheaper plan at a more realistic limit, at say 2 GB/month? Yes, that’s yet another rhetorical question.

International data plans

Back in 2008, I wrote about how ludicrous AT&T’s international data plans are, so I won’t rehash it all here. The basic facts remain sadly unchanged: What AT&T charges you for Internet access when traveling out of the country amounts to robbery. The situation for phone calls and text messages isn’t much different. But let’s keep the focus on data plans here.

AT&T’s default rate for 3G access overseas is $.0195/KB. At this rate, if you used 3 GB of data during a one month trip (what would cost $30 at the 3GB/month rate domestically), it would cost you $58,500!! (this is not a misprint).

Can there be any justification for this? Is there any place in the universe where this makes even the least bit of sense? File these questions under “rhetorical.”

AT&T does offer an alternative. You can purchase a discount data package in advance of your trip. But even with the most economical package, you would still pay $2400 for that 3 GB! In the end, your only practical option is to severely limit your 3G usage to the maximum of the package rate (such as 125 MB for $50). If you go over the package limit, you pay $10/10 MB.

Hotspots

Perhaps the most irritating of AT&T’s policies deals with tethered Personal Hotspots. AT&T has decided that, in order to use this feature at all, you need to sign up for its 5 GB/month data plan (for $50 month). Remember, 5 GB/month is a usage amount that, by AT&T’s own admission, almost no one needs. No matter. That’s what you have to pay to give a hotspot a try.

I don’t believe it costs AT&T any more money for someone to run a hotspot as opposed to web browsing or checking email. So why not allow people on the 3 GB/month plan to use the hotspot option? If you guessed this is a rhetorical question, you’re a winner.

As it stands, AT&T’s rates are a complete rip-off for anyone who intends to use a hotspot only occasionally, such as when on a business trip or vacation. In my case, I might use a hotspot a half-dozen times a year. For this privilege, I would need a data plan that costs $20/month more than the one I now have, for a total of an extra $240 per year. Ridiculous.

Would you like to create a hotspot with your AT&T iPad? Forget it. AT&T does not permit this at all for now. Only Verizon offers hotspots for the iPad.

[Verizon’s fees for iPhone hotspots work a bit differently, but not better. You can add a hotspot capability to any iPhone data plan for an additional $20/month. The $20 also buys you a 2GB more of data usage. This means the cheapest way to get a Personal Hotspot is to add it to a 2 GB for $30/month plan, for a final cost of $50/month for 4 GB. With the iPad, things are better: the hotspot feature is enabled at no extra cost for all data plans.]

Summing up

AT&T vastly overcharges for sending text messages. AT&T’s monthly data plans penalize the majority of its customers, forcing them to choose between plans that don’t offer enough vs. ones that charge for more than they need. International data plan rates are so absurd that Congress should investigate their legality. AT&T prices the hotspot feature so that almost no one will find it economical to use. And on and on.

How does AT&T get away with this? Because there isn’t significant competition. For iPhones and iPads, you are limited to AT&T and Verizon (with a small presence of other carriers for the iPhone). Your only choice is to pay up or give up your iOS device.

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24 Comments Leave Your Own

brett_x

You’d think that they’d get the message (no pun intended) on Text messaging with the senate Judiciary committee holding a hearing on the state of Text message fees back in 2009. It’s gotten much worse since then. Maybe it’s time to revisit.

http://www.judiciary.senate.gov/hearings/hearing.cfm?id=e655f9e2809e5476862f735da14b66b2

geoduck

Good Summery. Here in Canada the plans aren’t any better: expensive, deliberately written to be confusing, and full of ‘gotchas” that mean you pay a ridiculous penalty. (For example Rogers hit us up for ~$100 because we didn’t inform them in writing 30 days in advance that we were not continuing with them when our contract expired, and that was not even for a smart phone).

This is one of the primary reasons why I don’t have an iPhone yet. I almost got a 3GS. Almost got a 4S. Each time the “bend over and spread ‘em” nature of the contracts kept me from it. Maybe this fall when the iPhone 5 comes out. Till then it’s the WiFi iPad and iPod and a ‘dumb’ LG phone for me.

doug

I think Obama (or Romney, but he wouldn’t do it) should make it a plank of his election platform to take on the big wireless companies.  Talk about a populist issue!  He could pitch bringing fairness to these plans as effectively a tax cut for the middle class. 

One more thing that ATT & Verizon should and could offer but don’t offer:  pooled data plans for families.  If there were real competition, i.e., real price competition, then one of them might do that.  But there is not.

E

There are a few ways to save money:  Jailbreak your iOS device and tether for free, for starters. 

Or, you can go without a data plan if you want, and use wifi-only. I do this with my old 3GS, it has a GoPhone pay as you go SIM in it for phone use but no data plan.

Bosco (Brad Hutchings)

Ted, I wonder why you don’t get on Apple for ridiculous profit margins. But I digress… A couple observations…

I’ve had a family plan with various combinations of phones on Sprint, AT&T, and Verizon for more than a decade. Here is what I have noticed over the long haul. Cost per phone per month (in dollars at time bill paid) has gone down. Capabilities, minutes, speed, etc. have gone up.

With my Nexus One on AT&T, I was at about 600MB per month when I left, and honestly, I pretty much abused the data connection on that phone way more than anyone I know. I avoided downloading large things like podcasts on the data connection mostly because the AT&T data wasn’t very reliable. I’d get them on WiFi before going out. My Galaxy Nexus on Verizon has a 4 GB plan and I’m using about 900MB of that. A quick survey of friends at dinner last week indicated that 300MB was typical usage. They check email, look up prices, do navigation, etc. The point is that instead of whining, perhaps look at your usage and see where you fit, then purchase accordingly.

A bigger point is that even in a very competitive market, price is not always a small markup over incremental cost. The best example to illustrate this might be how AT&T billing worked for the first iPhone users way back when. They’d get a 50 page bill with each data radio usage logged. They still had all you can eat plans, but AT&T billing hadn’t yet caught up with the concept.

So I would suggest keeping your eyes on the bigger trend, which is that your mobile capabilities will continue to increase and the price you pay for them in total will continue to decrease (if you make reasonable fair comparisons). But don’t forget how expensive phone service was when it was tightly regulated. In 1980, in 1980 dollars, a dollar of “long distance” (an arbitrary tariff-defined term) from Los Angeles to San Francisco was about $20. After divestiture, AT&T offered a great long distance “deal”: 5 minutes for 85 cents, again in mid 80s dollars. Min 1990s, I was paying about $1/minute of cell phone use, mid 90s dollars. Today, I have 5 phones (3 Android, 2 feature), 2x as many anytime minutes as I’ll ever use due to F&F list, data plans that used at below 1/4 allowance… and it costs be a little more than $200/month. Vital business tool. Vital life tool. I know my parents and 2/3 grandparents are taken care of. Total bargain.

freejak

There is another option - buy an unlocked iPhone 3GS outright for $375 (http://store.apple.com/us/browse/home/shop_iphone/family/iphone/iphone3gs) and get a month to month plan from T-Mobile (https://my.t-mobile.com/Plan/Prepaid/PrePaid.aspx?rp.Logon=true). My breakeven time compared to the AT&T plan I had was 5 months.

From that point on I’m saving $30/month for as long as I wish.

Headstrong

your neglecting to mention that with unlimited text you also get unlimited mobile to mobile with all carriers. Which means lower voice minute plans then before are needed resulting in much more savings.

sideliner

Regarding your outrage and Brads attempt to put things in perspective (I don’t agree that Apple is guilty of the same as he implies) I find the thing that goads me the most is the fine print and the basic deceit involved in pricing.
  As Brad points out and I can attest, my phone bill 20 years ago was often $250 or more due to travel and calling home. I always felt that was just the price of the service but now the bait and switch billing approach is favoured. I think that any billing scheme that can result in inadvertent bills that are 100 times your regular bill without you having to sign up for additional credit is obviously a scam on the part of the carriers. Here in Canada I was pleasantly surprised when Rogers informed me that I would not be charged more than $100 over on my regular data use if I went over in any given month. A year later I checked again if that was still in effect (it sounded too good to be true and I didn’t trust them) and I was informed that yes it was but it was now a $500 cap not $100, a change well hidden in the detailed online part of the bill. Who reads that if your bill is the same every month.

Ted Landau

Cost per phone per month (in dollars at time bill paid) has gone down. Capabilities, minutes, speed, etc. have gone up.

Hi Brad. You make some good points regarding absolute costs to consumer going down over time. My guess is that costs to phone company have gone down as well. I remain unconvinced overall that we are getting a fair shake.

If I saw statistics that showed how the average amount of money stolen by bank robbers has gone down over the last thirty years, that would be nice to know. But whatever they were taking, it would still be robbery.

Bosco (Brad Hutchings)

@sideliner: I’m actually not offended by Apple’s profit margins. They’ll correct themselves. I’m a bit surprised that Ted isn’t though!

@Ted: Funny thing is, I get paid to sit at the kitchen table or the couch and write software, which I really enjoy doing. I often take serious business calls and bill by the minute while walking my dog or driving somewhere and the customers I do it with are more than OK with that. There’s honor among thieves. And I am so amazed that my 89-year old grandfather can easily call me if he needs help with something wherever he is that I can tolerate funky incentives with SMS pricing.

Tik Tok

My ATT family data plan only allows 200 MB/month/phone, not 300 MB.  To stay within that, as Mr. Hutchens so cheerfully advocates, I keep Location Services turned off; I keep Cellular Data turned off, and thus lose most of the functionality of my iPhone when away from wifi.  If I need to find cheap gas, I must turn on both those functions and, once I found a site, have also used at least 2MB for one quick search.  If you’re in a strange city and want to find restaurants, coffee shops, retail outlets or tourist destinations, go ahead and leave these features on for a few days. You’ll pop your monthly limits with no problems.  Use your email for work projects?  Not if you include significant attachments.  Watch streaming video or podcasts on 3G or 4G on your phone or iPad?  Not with a 200 MB account, unless you want only trailers and intro spots. 
Ted, in short, is not only correct, but Brad appears as a simple apologist for the phone companies.  By changing the subject to a comparison of costs of phone conversations over time, instead of addressing Ted’s outlining of price abuses in the smartphone world, Brad would like us to send roses to ATT.  Sorry.  I’m not buying it.

vpndev

My iPhone data usage (cell data) on today’s bill was 38MB. Most of what I do is WiFi (fortunately I have WiFi available at work). I’m a “light user”, the kind that AT&T should want to keep.

My iPad data usage is all WiFi. I have the AT&T iPad2 because I need data access while I travel in Europe (mainly in Germany). A Deutsche Telekom micro-SIM works great. The biggest problem, actually, is that Apple store in Germany don’t sell them, and DT’s sales folks rarely know that they exist.

Of course, the reason I bought the iPad was that AT&T refuses to authorize Apple to unlock my iPhone4. I have an old quad-band GSM phone that I had to use as a phone, and used the iPad for data. Clunky but way cheaper than AT&T’s rapacious international data rates.

The other reason is that using the iPhone means that I still have my U.S. number. It’s a personal phone, not business, so I don’t need that. What I do need is a local German number. That way the people I’m with can call me at local rates, rather than calling the U.S. to get me across town. Does AT&T understand this?? No. Infinity-times-no!

So my iPhone (day 1 iPhone 4) is up June 24. My next iPhone will be Verizon, as they will unlock the GSM side for international use. If AT&T changes their policy before then, I might reconsider. But I WILL NOT buy one that can’t be unlocked for international use.

Oh, and Verizon’s iPad plan includes hotspot. AT&T does not. That’s an easy call too. So AT&T is batting zero-for-two.

Terrin

This is why I am a big T-Mobile fan. I have two iPhones unlocked. Currently, I have a value family plan that includes 1000 shared minutes (free mobile to mobile calling); and unlimited data and texting. The plan costs less than eighty dollars a month (not including taxes). A comparable plan on AT&T costs $160 a month (not including taxes). The only difference is on AT&T I would only get 700 shared minutes.

If I want to go unlimited everything on T-Mobile the price goes to $99.99 a month. This is for a plan with no contract. On AT&T the price for unlimited voice climbs another fifty dollars to $210 a month with a two year contract, but data is capped at 3 Gigabits (and will be tethered at some lower hidden number). That is insane.

Where I live (in Ann Arbor Michigan), T-Mobile’s reception is better than when I was on AT&T. The only alleged draw back of T-Mobile if you are a iPhone user is 1) only being able to access T-Mobile’s Edge network, and 2) the lack of an iPhone subsidy.

For me the Edge issue is a non-issue. I stream Pandora, check my email, use apps like Flipboard,  all generally without lag. If there is a little lag, it isn’t very much of a lag. This isn’t always the case, but I have occasionally even been able to stream Netflix without any stalling. I suspect I am benefitting from most official T-Mobile phones being on its 4G network leaving Edge almost empty. The crazy thing is I can only access the tethered speed and it works fine for 90 percent of what I need it to do.

As far as the subsidies go, basic math will tell you they are over rated. An unsubsidized 16 GB iPhone 4S costs $649. When it is subsidized you pay $199 of that out of pocket (assuming you are getting the low end model iPhone 4S). So the subsidy pays $450. If you take that $450 and divide it by the two years of the plan you get $18.75 a month. Add that to T-Mobile’s most expensive plan and that is less than $120 a month for on a contract free plan. Add another phone and it is less than $140 a month on a contract free plan. Moreover, the unlocked phones are more valuable in that you can travel anywhere without restrictions.

The other day T-Mobile sent a text saying if I was having reception troubles in my home to give it a call, as I would be provided a free in home tower. I don’t need it. My buddy who lives on the other side of town recently had to pay AT&T $30 for the same tower to improve reception in his home.

I have been on AT&T, Verizon, and Sprint. I just don’t get why people are there.

Terrin

PS:

Another weak point for AT&T is the lack of ability to customize plans. If I wanted to take my unlocked iPhones to AT&T, it would require me to purchase data plans even if I didn’t need one. For instance, if I had plenty of wi-fi access by me and a GPS app that installed the maps locally (like Navigon). T-Mobile doesn’t care.

vpndev

I’ve been seriously looking at T-Mobile, especially since my data usage (non-WiFi) is low. Their coverage in my area is OK.

As you say, the subsidy is not that much (and of course the rates stay the same even when you’re off-contract).

I guess another option is to switch to GoPhone (AT&T) which should work on my AT&T-locked iPhone, once it is out of contract.

Some ex-pats will remember the BBC’s “Goon Show” from the 50’s. The appropriate line is “Open your wallets and repeat after me, ‘Help yourselves’ “

BurmaYank

Wow! Maybe some relief for us besieged and sorely abused AT&T data plan users is just about to charge to our rescue from over the horizon (from an unexpected ally; the CDMA iPhone services of Verizon & Sprint):

“Apple?s April 20 iPhone 4S regional carrier rollout now includes Appalachian Wireless, GCI, and Matanuska Telephone Association. On Wednesday, both nTelos and Alaska Communications announced they were launching iPhone coverage on the 20th, as well.

Like nTelos and Alaska Communications, the other three regional cell service providers will offer the iPhone 4S and iPhone 4 for US$50 less than AT&T and Verizon. All will be selling the iPhone 4S at $149.99 for the 16GB model, $249.99 for the 32GB version, and $349.99 for the 64GB model. The iPhone 4 will be priced for $49.99.” (With two-year service contracts “... priced starting at $79.99 a month for 600 voice minutes and unlimited data and SMS.”)

HALLELUJAH! Some real CDMA-world competition in the US! 

So, now shouldn’t we dare hope for a data plan price war to force Verizon &/or Sprint to drop their CDMA data rates, which THEN in turn, should force a drop in AT&T’s GSM data rates?

BurmaYank

If only T-Mobile could now get on board the iPhone express, with the same discounts and cheaper data services of those five new regional CDMA iPhone services, AT&T’s abusive GSM data plan would really be “behind the 8-ball”.

Ray Delagarza

After traveling abroad I see that everyone relies upon their mobile devices, yet the cost is higher than what we are paying in the United States.  Why is is that we want everything practically free and the rest of the world gets the fact that you have to pay for infrastructure to be built out?  Lower costs don’t mean better service in the long run.  Who is paying to upgrade to LTE or place more towers.  Do you think it will happen by operating on 2% margins?

One gentleman said he sat at his kitchen table and wrote software.  I am sure if I broke it down there would be a rather hefty hourly rate associated with his paycheck.  My guess is that his time is not being billed out at $20 per hour.  It is the percieved value that we are willing to pay.

We also get on the “unlimited data” option.  Europe (who is far ahead of us) has been paying tiered data pricing all along.  But this is like the American attitude at a buffet.  Eat all you can, whether you need it or not.  Take what you need, pay for what you need and quit the whining.

Lastly, for those enthusiastic few who are looking forward to the CDMA iPhone on their regional carrier, be prepared for frustration.  The reason Verizon has been so agressive building out LTE is because there is no migration path forward on CDMA.  Qualcom stopped support and there is no “Next Step”.  The only logical step was to abandon CDMA and begin the migration to LTE.  So basically you are in an LTE area getting great speed and then fall off a cliff into the CDMA world.  Might as well be 14.4 modems.

Terrin

I guess another option is to switch to GoPhone (AT&T) which should work on my AT&T-locked iPhone, once it is out of contract.

I have been told AT&T will not allow a iPhone on its network without charging the monthly data fee EVEN when operated as a go phone. T-Mobile doesn’t require a data plan.

Terrin

The AT&T offer likely screwed that up (at least temporarily). There is no way Apple was going support a network that might not be around in six months. Moreover, T-Mobile couldn’t commit to an Apple deal (like Sprint had to do) or make network modifications to support such a deal with the AT&T offer hanging over its head. T-Mobile’s parent company is one of Apple’s largest partners overseas.

If only T-Mobile could now get on board the iPhone express, with the same discounts and cheaper data services of those five new regional CDMA iPhone services, AT&T?s abusive GSM data plan would really be ?behind the 8-ball?.

Andy

Reading with interest how us and Canadian customers are getting totally ripped off. Here I the UK I pay ?25 a month (1 month rolling contract -cancel when ever) with my 4S. With that I get unlimited Internet (totally unlimited - no throttle/fair usage), 2000 minutes and 5000 text messages. Can’t understand how we get such a fair deal over here compared to you guys.

Winski

1) IF you have to stay that connected all the time you’re an idiot….

2) IF you’re an AT&T customer, you’re an idiot,

3) get a life… Buy a phone…. Live a little and let AT&T go broke.

vpndev

I see news just now that AT&T will unlock iPhones once the contract is complete.

So much for the lies “...it is impossible to unlock the iPhone”

tomgnc

SPRINT!

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