What if mobile app developers could pay for data?

By Joshua Gans

Posted on March 1, 2012

That’s the scenario being put forward by AT&T today.
A feature that we’re hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage.”
Currently, mobile users pay for data. You want to consume more mobile data you get a monthly plan with a higher subscription. Outside of the US, this is common for all data services, not just mobile. In Australia, for instance, this has long been the policy but some integrated data has come ‘outside the cap.’ Usually that data is from sources owned by the ISP, however, I recall an instance where one provider include iTunes downloads as ‘outside the cap.’
But what will the impact of this be? For instance, say, Google would like all Google products — from search to YouTube — to be something mobile users can use without worrying about limits. They will do a deal with AT&T to pay for some share of that. That would mean that AT&T could now sell its network as being ‘Google friendly’ while Google would get more traffic from AT&T customers than its competitors would. But AT&T, so we are told, faces network costs in handling the data. Yes, these are now covered by Google but users now do not internalise the costs of Google traffic. AT&T would have to charge Google correspondingly more for that. But similarly, if you are on a 2GB plan and you used to use 1GB on Google products, AT&T won’t want you to just freely use data to make up the difference. It will want you to internalize the non-Google stuff as before which means a tighter cap on that stuff. You might argue that because AT&T is earning all this revenue from Google, it can charge you less. It can, but only shifting the Google portion to Google. So you may get lower flat subscription fees but the data portion will involve higher marginal prices.
Add this up and it is worrisome for smaller developers. And it is precisely the sort of development that Net Neutrality advocates were worried about. To be sure, given sufficient competition between mobile carriers, this is all shifting around the deck chairs. But if competition isn’t strong enough, the money will stay with the power.
And if that doesn’t worry you, think about what this means for Netflix. On one level, it sounds like opportunity — they could pay for user’s data and open up the mobile viewing space. But on another level, so then can AT&T, Verizon and others who also have Cable TV operations and their own content. It costs them nothing to offer a data 1-800 service to themselves while at the same time being able to charge rivals for it. And then think about what happens if we don’t stop at mobile and move on to broadband.
The preceding is re-published on TAP with permission by its author, Joshua Gans, Chair of Technical Innovation and Entrepreneurship and Professor of Strategic Management, Rotman School of Management. “What if mobile app developers could pay for data?” was originally published February 27, 2012 on Digitopoly.