AT&T's app developer billing scheme: Will app makers buy in?

AT&T's trial balloon of charging app developers for bandwidth their users consume might not stay in the air very long.

AT&T's trial balloon of charging app developers for bandwidth their users consume might not stay in the air very long.

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John Donovan, AT&T's senior executive vice president for technology and network operations, told the Wall Street Journal this week that the carrier was considering developing "a feature" that would be "the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage" from the end user's perspective. Instead, the company whose app was being used would be the one to foot the bill for the bandwidth consumed. Or put another way: People using the app wouldn't incur any data usage on their monthly service plans but app developers would have to pay a price as condition of users' unlimited data use through the app.

The question, though, is whether a significant number of app developers would agree to pay a premium so that consumers would be able to use their apps without fear of incurring data overage charges. Donovan told the Journal that app developers that use data-heavy services could reach a wider audience if users were able to access their applications unhindered.

"Why don't we go create new revenue streams that don't exist today and find a way to split it with them," Donovan explained.

Gerald Faulhaber, a professor of business and public policy at the University of Pennsylvania's Wharton School, says AT&T's reasoning is perfectly sound and that no application developer will be forced to pay AT&T if they don't feel they their users will feel inhibited by bandwidth limits.

"It seems clear that AT&T is offering this as an 800-type service that firms can buy or not buy, as they choose," he says. "If a firm wants to give customers the option of downloading an application without risk... then this would be a good marketing tool for them. Otherwise, the firm wouldn't buy it. Lots of firms, big and small, offer their customers 800 telephone service and it is a win-win. Why not do the same on the Internet?"

The big problem from AT&T's perspective is that it's unlikely to get big-time app developers to sign up for its new payment scheme if it's the only carrier to offer it. In all likelihood it will at least take Verizon to jump on board with a similar plan to make app developers see the value of buying in. Doug Humphrey, the CEO of Joss Heavy Industries, says it would be relatively simple for big-name app makers to essentially gang up on AT&T by lowering their service quality on AT&T devices if the carrier tries to get them to pay for their users' bandwidth consumption.

"How long is this effort going to last if Facebook, Spotify, Google and YouTube announce that they will be bumping AT&T customers to lower priority and that their performance may suffer a little bit, because of the AT&T charges," he says. "I am guessing maybe two days? One day? Sub-24 hours?"

Carl Howe, an analyst for the Yankee Group, expresses a similar notion and says carriers may be underestimating the power of app developers if they think they'll fall right in line and happily sign up for the new pricing scheme.

"Personally, I bet the Four Horsemen of Mobility — Amazon, Apple, Facebook and Google — which now comprise more than U.S.$800 billion in market cap and U.S.$207 billion in annual revenue, won't want to negotiate 150 different new deals to pay more to operators for no new benefit to their businesses," he writes. "I wouldn't want to be an operator who tried to sell the idea that their service won't be able to offer Facebook or Google on their network because Facebook and Google don't want to pay the bandwidth fees."

Keith Pichelman, the CEO of app developer Concrete Software, says even though his company's mobile games aren't likely to use enough bandwidth to need AT&T's new proposed pricing scheme, he has trouble seeing how AT&T will be able to sell the system to both end users and app developers.

"This sounds like it would only work for AT&T if the consumer downloaded the app through AT&T," says Pichelman. "How could they charge the application owner if they don't have a relationship with them? If that did end up being the case - could AT&T spin this to consumers as a "safe" place to download apps - a place where you don't get charged unknown data fees? My guess is that the backlash will have AT&T pull back this plan or limit it to those apps that are large data consumers.”

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