Personal Finance

AT&T Begins Enforcing Internet Data Caps

Screen Shot
Screen Shot

Image source: AT&T.

Why is AT&T doing this?

On one hand, Comcast and AT&T are not implementing data caps for now. They're allowing customers used to get used to the idea so the charges are not shocking when they hit people's bills. Essentially, both companies know that most people won't exceed their caps, but as technology changes, they will consume more data, pushing them over the limit.

That might mean watching more movies, connecting more devices to the Internet of Things, or using not-yet-invented virtual or augmented reality technology. As that happens, people will consume more data, and AT&T and Comcast can slap them with heavy overage fees.

In addition, data caps are being put into place to hedge against cord-cutting. If people drop AT&T or Comcast's pay-television service, they will likely still need to stick with the company for Internet access. Of course, if a customer cuts the cord to use streaming services, his or her data use will increase, allowing the companies to make back some of the money lost from reduced cable revenue.

The potential of those fees is simply too tempting for AT&T and Comcast to ignore because of how much money wireless overages have meant for AT&T in its wireless business.

In wireless, overages are not a simple number to calculate, because the figure includes not just the actual money people pay for exceeding data caps, but also what they spend buying too-big data plans they don't actually need. T-Mobile (NASDAQ: TMUS) CEO John Legere, whose company does not charge overages, pegged total overage charges at $2.5 billion -- 95% of which is paid to AT&T and Verizon .

That's not even the big problem, Legere noted at a November 2015 Uncarrier X event . The big issue, he said, is over-buying, which he estimates is a $45 billion annual tax on consumers. Legere certainly has his biases, but a comment he made at Uncarrier X explains exactly why AT&T and Comcast want to implement Internet overage charges.

"They've got you right where they want you," he said. "What do you think the margin is on overages? It's pure. It's total."

What happens next?

Comcast has only been testing its data cap plan in select markets. AT&T is now rolling out its new caps nationwide. The company is, however, giving people time to get used to the program: For now, customers will simply be notified the first two times their usage exceeds their plan. On the third violation, the $10 per 50 GB charges start to kick in.

Of course, there is an option for consumers who would rather not worry about data caps (even if they have no chance of approaching them): The company offers unlimited service to people who bundle one of its pay-television services along with Internet. For Internet-only customers, AT&T offers uncapped data for $30 a month.

In both cases -- either a capped plan or a more expensive unlimited plan -- the data cap fees will not only pad AT&T's bottom line, but also change the math for cord-cutters. It's not evident now for most users, because few run the risk of immediately hitting the caps, but AT&T is laying the groundwork for a trap that either forces customers not to cut the cord or leads them to spend more for Internet if they do.

It's a clever ploy that could ultimately be good for investors in the same way overage charges and over-buying are good for investors in the wireless space.

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was the best performing in the U.S. as reported by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations. Together, they've tripled the stock market's return over the last 13 years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal in Aug. 2013, which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More