Thursday, June 3, 2010

AT&T introduces tiered pricing for data - good news for RIMM

Yesterday, AT&T, the second largest mobile carrier in the US, announced the introduction of tiered data plans. A $15 plan for 200 megabytes a month and a $25 plan for 2 gigabytes will replace the original $30 unlimited plan for all new customers.

This move comes as AT&T, the only network that carries the iPhone in the US, struggles with congestion on the network. This has been caused by the explosion in the popularity of smartphones. The iPhone, for example, consumes 7 times more bandwidth than a regular cell phone.

This congestion has lead to frequent dropped calls and slow internet browsing. According to the Globe and Mail, Andrew Pierce, a 21-year-old student in New York, sometimes has to try three or four times before AT&T’s network connects him, and he puts up with two or three dropped calls each day.

In terms of the impact of this news on individual stocks, it is certainly bad for Apple (AAPL). Apple has created a popular entertainment device in the iPhone. However, the availability of tens of thousands of apps has led to increased bandwidth usage, and the congested state of AT&T's network today.

On the other hand, this is good news for RIM, since the Blackberry is much more efficient with bandwidth than the iPhone. For example, for a text-only email, the Blackberry uses only 10% of the bandwidth that the iPhone uses. In addition, the Blackberry only uses 41% of the bandwidth that the iPhone uses to load a webpage.

Carriers are spending billions of dollars to upgrade to 4G networks. While these 4G networks, which can handle more bandwidth, will be coming out in the next few years, it is not the only solution. Another solution is to make smartphones that are more efficient. RIM has a significant advantage over its competitors like Apple in this area, since the company has always evolved around the principle of doing as much as possible with as little as possible. Its superior compression technology is the reason why it uses less bandwidth than the iPhone.

Therefore, the congestion of wireless networks is a problem that is already upon us. Factors in this problem include the growth in smartphone users, the capacity of 4G networks and their launch dates. RIM has a clear advantage over Apple in this area. Only time will tell how big the problem becomes, and correspondingly, how big RIM's advantage is over Apple. For example, all it takes is a well-publicized case of a user fed up with dropped calls (like Andrew Pierce above) for a wave of users to switch from the iPhone to the Blackberry.

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