Consumers angry at high charges for iPhone tethering

by Caroline Gabriel, ReThink Wireless

The launch of the Apple iPhone 3GS brought a mixture of relief – that the firm had actually unveiled a new model – and disappointment – that it wasn’t more ground breaking. But one company that did not make as much capital from an iPhone launch as it usually does is AT&T.

The appearance of the 3GS and iPhone 3.0 software just highlighted growing discontent with the restrictions that users believe the exclusive US carrier puts on the performance of its favourite handset, with controversy raging around new features such as tethering and MMS.

[Ed says: Tethering is the ability to use a phone as a modem to connect to a laptop for internet access. This has so far not been possible with previous editions of the iPhone, yet O2 UK has stated it will be charging a minimum of £15 extra, on top of existing subscriptions, to allow users of the new handset and those that use a download to get the feature on older versions of the iPhone, to access this functionality. Bit steep if you ask me….]

AT&T will introduce MMS, a new iPhone feature, later in the summer, it said, though it has to remove ‘opt out MMS’ codes manually from each iPhone account first. More controversially, AT&T will block data tethering at launch, according to the BoyGeniusReport blog, and even when it does support this key feature, it will charge $70 a month (with unlimited data, but no SMS or MMS).

Other operators are nervous about the strain that tethering can put on their networks and are looking to charge high prices for the option. O2 UK users will have to buy a ‘Bolt On’ to use the service, paying an extra £14.68 ($24) a month on top of their regular iPhone tariff to get 3Gb of tethering data, or £29.36 per month for 10Gb. An extra 1Gbn on top costs a further £4.89. Other carriers that will allow tethering, for various prices, include Bharti Airtel, Telefonica, TIM, Optus, Orange, TeliaSonera, Maxis, Rogers, Chunghwa Telecom, Telkomsel and Telenor.

Such discontent highlights that it may be time for Apple to end its hugely long exclusive deals in key markets like the US and UK and open up consumer choice of networks to maintain iPhone momentum and growth. But AT&T is desperate to hang on to its exclusive for another year at least, as its margins start to pick up.

Although AT&T will sell off the older iPhone models cheaply – $99 for the 8Gb version and $149 for 16Gb – it is not expecting a heavier hit on margins than iPhone subsidies already entail.

The operator said it expected 2009 wireless service operating income to be in the low 40% range, and insisted that the cost of customer acquisition for the 3GS and the new low cost iPhone 3G will be similar to those of the existing devices. In addition, it expects the 3GS to drive ARPU increases, attract new users and reduce churn – a balance that has so far paid off for the cellco, despite the impact of high subsidies on its profits.

Margins fell to 33.5% after the iPhone launch but were back to 41% last summer and analysts think that, as AT&T gains scale (it has over 4.5m iPhone subscribers paying at least $70 a month) margins could go up further.

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