AT&T will halt new signups for unlimited cellular data plans for the iPhone and 3G iPad starting 7 June 2010. Instead, the firm is offering two cheaper data plans that have usage limits, but also feature the cheapest overage fees in the United States.

AT&T also said its long-delayed tethering option will launch on the iPhone when iPhone OS 4 - now called iOS 4 - becomes available on 21 June 2010, paired with the more expensive of the two new data plans.

This news was clearly timed to break before Apple's announcement of the iPhone 4 and iOS 4 at Apple's Worldwide Developers Conference (WWDC). It also means that AT&T didn't want to be committed to offering unlimited service for the new iPhone 4.

This announcement would seem to increase the likelihood that Apple plans to announce a deal with Verizon Wireless, though that didn't happen at WWDC. For the last three years, Apple has seemingly required AT&T to offer unlimited plans in exchange for exclusivity for the iPhone and a technical standards limitation that made the 3G iPad an AT&T-only option for cellular data service. The fact that AT&T is changing the deal now would seem to indicate that Apple would prefer to deal with multiple U.S. carriers for future iPhone and iPad models rather than insist on unlimited data plans.

Unlimited No More -- The biggest news in AT&T's announcement is that unlimited data plans will no longer be available to new subscribers. Existing iPhone and 3G iPad subscribers can continue to use unlimited plans until they cancel or change their service plan.

The promise of unlimited data kick-started the iPhone revolution, but also created a host of problems for AT&T; its cellular network quickly bogged down, especially in heavy-adoption areas like New York City and San Francisco. AT&T is investing billions to handle the load, but the problems are clearly still weighing on the firm, which recently launched a pilot project in Manhattan's Times Square to test offloading data to a massive Wi-Fi hotzone.

AT&T launched the original 2G iPhone with a $20-per-month unlimited EDGE (2.5G) and text-messaging plan. For the iPhone 3G's launch in 2008, AT&T raised the fee to $30 per month, and started charging for even a basic text message plan.

The iPad was introduced in January 2010 with the promise that AT&T would offer an unlimited plan of the same ilk - in other words, not a "fair-use" plan, as some European carriers provide, with strict or hidden caps. AT&T offered two plans: $14.99 per month for 250 MB of data, and $29.99 per month for unlimited data.

As of 7 June 2010, AT&T will provide new iPhone customers with two choices: a 200 MB per month DataPlus plan for $15, and a 2 GB per month DataPro plan for $25. AT&T will warn you through text messages and email as you get close to the limits each month.

The 3G iPad, meanwhile, will have its $29.99 unlimited plan replaced with a $25 2 GB offering similar to DataPro. The 250 MB plan for $14.99 will remain available.

If you change your plan on an iPhone or other smartphone to the DataPlus or DataPro offering, or you currently have an auto-renewing unlimited plan on a 3G iPad and halt the renewal or switch to 250 MB, AT&T has confirmed that you will never be able to restart unlimited service. If you're exceeding 2 GB of 3G data usage regularly, you should make a point of keeping the old unlimited plan active.

AT&T claims that 65 percent of smartphone customers - note that the firm didn't say iPhone users - consume less than 200 MB of data each month on average. It also says 98 percent of smartphone subscribers use less than 2 GB on average each month.

Those are weasel words, but good ones. It's well documented that iPhone users consume higher quantities of cellular data. The "on average" qualifier means AT&T customers could go way over usage limits in many months, but still average out much lower. AT&T obviously can't release iPhone usage or histograms of monthly usage because that would show too clearly that these plans aren't as advantageous as the firm would like to pretend, hurting iPhone users and, likely, Android users, who probably consume similar amounts of data. (A company spokesperson confirmed for us that AT&T doesn't break out specific smartphone usage patterns.)

Still, users who regularly stay within 200 MB will see their monthly data bills halved, while heavy users who can stay within 2 GB will save $5 per month. As Glenn found out in February 2010, he was averaging only a bit more than 200 MB per month for the second half of 2009, with the usage trend decreasing. In researching this article, he found his use has dropped further in the last few months. AT&T now offers a simple historical graph of usage. Log in to your AT&T account, click Usage & Recent Activity, then click View Past Data Usage to view these charts. (Also, see "Can You Get By with 250 MB of Data Per Month?," 2 February 2010.)

As another aid to keeping 3G data use down, all of AT&T's plans include unlimited access to its U.S. Wi-Fi hotspot network of 21,000 locations. It's worth pointing out, however, that over 19,000 of those locations are McDonald's and Starbucks outlets, both of which offer free service. (McDonald's is completely free. Starbucks gives you two hours a day after registering a Starbucks Card. See "Find Free and Inexpensive Wi-Fi," 25 March 2010.)

Overage and Underage -- Overage fees on the new plans are structured differently from previous 3G pricing from AT&T or other carriers. In the past, carriers have charged exorbitant amounts, metering by the megabyte, when a set level was exceeded.

Overage rates used to range as high as 20 cents per MB ($200 per GB!), but carriers have been dropping those rates over time. The range is now 5 to 10 cents per MB. (T-Mobile uniquely offers a 5 GB plan that has no overage charges, but usage is throttled to slow speeds after 5 GB is exceeded in a given month.)

AT&T says it will notify smartphone users by text message and email (if the firm has yours on file) when you reach 65, 90, and 100 percent of your monthly data plan's usage. Live data usage is also available from the AT&T myWireless iPhone app, by calling *DATA# from an iPhone, or by checking your account on AT&T Web site. (3G iPad users will receive similar alerts on the iPad and via email, although at slightly different remaining usage percentages.)

After you cross the usage cap on a smartphone in a given 30-day billing period, AT&T will automatically add more data to your account. AT&T is no longer metering by the megabyte, but charging by large data units. DataPlus 200 MB subscribers will see a $15 charge for each 200 MB unit added, while DataPro users will pay $10 for 1 GB - that's one penny per MB. AT&T told us that you can keep using data in 1 GB intervals at that price; there's no cap on how many you can add.

Given that AT&T includes 5 GB of usage for $60 for its laptop 3G plans, $25 for 2 GB plus $30 for 3 GB more is a slight discount.

Unfortunately, AT&T isn't treating unused data like unused voice minutes. If you don't use all your allotted data during the 30-day billing cycle, unused portions expire and don't roll over into the next cycle. That's silly, since AT&T rolls its minutes over with great aplomb. Perhaps another carrier will up the ante by rolling over unused data as a way of competing.

The iPad retains its separate prepaid pricing structure that excludes automatic overage charges. You can purchase and automatically renew either 250 MB or 2 GB of data, or change between them or cancel at any time without a penalty. If you exceed the allotted data within any 30-day period, you can purchase a new 30-day plan for either 250 MB or 2 GB - the clock restarts when you recharge.

(Note that the iPad plan is sold in increments of 2 GB for $25, more or less, compared to the smartphone DataPro plan which includes 2 GB for $25 and then adds $10 for each additional 1 GB purchased within a 30-day billing cycle.)

It's worth noting that iPhone plans in most of the world have never offered unlimited data. For example, Rogers in Canada offers a variety of data plans from 500 MB to 5 GB per month, and Orange in the UK says their "unlimited mobile Internet" offering has a "fair usage policy" that actually limits users to 750 MB per month.

Many non-U.S. iPad data plans have higher usage limits than iPhone plans - ranging from 1 GB to 10 GB per month - but when a limit is hit, the carrier throttles service to 64 Kbps for the remainder of the billing period. (See "International iPad Ship Dates and Prices Announced," 10 May 2010.)

The Vodafone unlimited plan in Australia is now the only one we're aware of in the world that includes unthrottled, unmetered service; it costs Au$49.95 (US$42) per month.

Tether Me -- Amid the sad news of the end of unlimited service and the good news of lower prices for most users, the happy fact that AT&T will start allowing iPhone tethering was nearly lost. Tethering enables a mobile phone to act as a broadband modem, sharing its 3G data connection over Bluetooth or USB to a device (usually a computer) that has the proper driver support. The iPad lacks such support, but Mac OS X, Windows, and many Unix/Linux flavors include it.

Apple added tethering as an option a year ago with iPhone OS 3.0, but AT&T never created a plan with which to use the service. Some international carriers sold iPhone tethering service, and most U.S. carriers allow tethering on other mobile phones for an extra fee.

AT&T will now charge just $20 per month to enable tethering, but the $25-per-month DataPro plan is required. Most U.S. carriers charge $30 per month to add tethering to a data plan. Data usage is counted against the 2 GB limit, so users will have to be cautious about such data-hungry activities as video streaming and software downloads.

Tethering is distinct from mobile hotspot service, with which a smartphone can share its 3G data connection via Wi-Fi to nearby devices. This feature appears in Android 2.2, the Sprint HD Evo 4G phone due out in a few months, and Verizon's versions of the Palm Pre Plus and Pixi Plus phones. Verizon eliminated a mobile hotspot fee for its Palm phones recently, possibly to boost sales. It still charges for tethering on other phones.

AT&T says the new tethering feature will be available for the iPhone once Apple releases iOS 4 on 21 June 2010, which leads us to suspect some changes to the feature from last year's release. The wording of the AT&T announcement implies - though doesn't state outright - that existing iPhone 3G data plan subscribers must switch to DataPro, and lose unlimited service, to add tethering. This seems likely.

Luckily, AT&T does state unambiguously that you can switch back and forth between the new data plans as necessary. It seems likely that you'll be able to toggle the tethering plan on and off each billing cycle, as you can with the iPad data plans, but AT&T hasn't stated that clearly as far as we've seen, although TUAW's article on the topic claims that tethering doesn't require a contract.

As a result, it looks like the new data plans will provide what many of us have wanted: an inexpensive capped data plan for normal usage, but the capability to switch up to a plan with a larger amount of data for anticipated higher usage, and to couple that with a tethering plan. For instance, we might switch to the DataPro plan and turn on tethering for a month when we're planning to attend Macworld Expo, and then switch back to the DataPlus plan the next month.

The Net Effect -- The removal of unlimited offerings will likely have the greatest impact on 3G iPad users. The iPad can consume vastly more data than the iPhone, with apps like Netflix for streaming, and the iPad Camera Connection Kit for transferring full-resolution photos and videos, which can then be uploaded. A 2 GB limit for 3G usage will constrain some users in what tasks they can accomplish.

For iPhone users, however, the limits may not be so severe. On a 2 GB plan, a user would mostly need to avoid downloading apps, podcasts, and media - Apple already limits such downloads to 20 MB each, but those can add up - until a Wi-Fi network is available.

In practical terms, AT&T may have just reduced the usage on its network - or at least slowed future growth - while making some users happier by slashing their monthly data fees in half. For heavy users, it means potentially more fees paid to AT&T, but such people will either pay the fees or adjust their behavior.

The real impact of AT&T's move might be seen later this year. Clearly, AT&T has held its ground on providing unlimited service due to some agreement with Apple. Whatever that agreement was, it would now seem to be off the table, which makes it more likely we'll see some sort of a deal with Verizon Wireless in the future.