The latest version of Apple’s iOS operating system will allow its FaceTime function (it is not an app on the iPhone but is built in) over cellular. For the last two years it has been wireless only (although Aaron Sorkin’s researchers appeared to have missed that in a recent version of The Newsroom). Of course, apps like Skype and Google+ already allow video calling via an app. The lack of cellular functionality has always seemed pretty strange given that surely the most likely time you want to have a mobile video call is when you are out and about and want to show your receiver something.
Interestingly, AT&T have decided to restrict customer access to this feature. Only those subscribing to its new Mobile Share plans will be able to use FaceTime over cellular. Everyone else either has to wait until they are near a WiFi connection or use an app. This caused many to question whether AT&T were violating the FCC’s rules by restricting the Apple product while allowing others. Of course, Apple’s product isn’t an app so supposedly this gets around those rules. In any case, AT&T’s view is that allowing some people to use FaceTime over cellular is better than nothing so it is all good.
What is strange here is not whether AT&T is being discriminatory but why it is choosing to discriminate in this fashion. The Mobile Share plans are new and they allow people to share data across devices (and people). They are like family plans but with data as well as minutes thrown into a common pool. But my quick examination of them shows them to be expensive. Indeed, they are slightly more expensive for people with small number of devices than AT&T’s individual or family plans and really only save money if (a) there are asymmetric use patterns across people and (b) there are asymmetric use patterns across devices from month to month (e.g., some months you use lots of data on an iPhone and in others it is on an iPad).
What this means is that as a tool for discrimination (and I mean of the price kind), AT&T are saying that high willingness to pay for asymmetric data usage is correlated with high willingness to pay for FaceTime over cellular. Now I don’t have the data but this strikes me as pretty implausible. More likely is that AT&T want people on to the more expensive new plans and are offering FaceTime as a feature to lure them there.
Here, however, is what is odd about that. FaceTime is a communication function. Its value is being able to talk to other people with FaceTime and when only a fraction of people you know have it, it is not as valuable. In contrast, consider features that allow you to use your mobile phone as a wireless hotspot to connect a laptop. Now AT&T use that as a discrimination feature too (or at least they do in some plans) and require people to be on higher cost plans to take advantage of it (even if they want to only use it occasionally). But there, the value is to the individual and does not depend on network effects through communication. So they are not crimping the product by pricing it as a premium feature. For FaceTime that is precisely what they are doing.
Of course, AT&T are saying that it is because of network management issues that they are limiting FaceTime use. However, it seems that such things would apply to all Internet use from mobile devices and so it seems strange to discriminate on a feature rather than engage in pricing that might allow people to economise if they are using devices too intensively at any given moment.
AT&T executives would do very well to read Dan Bricklin’s terrific essay, “What will people pay for?” from 2000.
People like to interact with people they care about. The interactions are often simple, but personally important. They are willing to pay money for this. That’s why they pay for cellphones, for Internet access, and for postcards and postage, and for souvenirs. It gives them emotional satisfaction. They pay money to travel to visit family and friends.
The whole thing is a must-read but it makes the point that if you want to sell people phone plans make sure that they can allow maximum interactions. When you put only a fraction of your customers on phone plans that allow maximum interactions you are underselling them and missing an opportunity. You can then price discriminate on the basis of overall use under conditions that will actually encourage that use.