UPDATE 2-AT&T CEO sees iPad mostly used on Wi-Fi

* Sees iPad buyers using Wi-Fi, prepaid

* Does not see a lot of subscriptions for iPad

* AT&T shares close down 0.48 percent

NEW YORK, March 2 (Reuters) - AT&T Inc (T.N) expects users of Apple Inc's (AAPL.O) iPad to connect to the Internet mostly using short-range Wi-Fi networks rather than AT&T's cellular network, the chief executive of AT&T said on Tuesday.

While AT&T has agreed to provide wireless connections to the iPad tablet computer, Randall Stephenson said he does not expect the device to result in many new service subscriptions for AT&T as consumers will instead use Wi-Fi or prepaid services, where they do not have to sign a service contract.

"My expectation is that there's not going to be a lot of people out there looking for another subscription," he said during a webcast of an investor conference, adding that the device would be a mainly "Wi-Fi driven product."

Many consumers have their own Wi-Fi networks at home or go to coffee shops where they can avail of free Wi-Fi.

When asked about AT&T's exclusive rights to U.S. sales of Apple's iPhone, Stephenson said iPhone would be "an important part" of AT&T's phone line up "for quite some period of time."

But he did not comment on timing related to the exclusivity agreement, which has helped AT&T win customers from rivals such as market leader Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

Some analysts expect the exclusivity agreement with Apple to end this year, but others expect AT&T to do anything it takes to extend the deal because iPhone is integral to its growth.

AT&T has admitted to network problems in markets such as New York City and San Francisco where there are a large number of bandwidth hungry iPhone users.

Stephenson said the company would show considerable improvements in its network in those metropolitan areas.

"We've got a ways to go, but we think this quarter will really move the needle considerably in both of these markets," he said.

Stephenson expects changes in how the wireless industry prices its mobile data services going forward, with heavy data users being charged more. Smartphone users currently pay a monthly fee of about $30 for unlimited data.

"For the industry, we'll progressively move towards more of what I call variable pricing so the heavy (use) consumers will pay more than the lower consumers," Stephenson said.

He expects the Federal Communications Commission to focus on how to push mobile broadband further when it announces a National Broadband plan later this month.

Stephenson also said he was optimistic about how the telecom regulator would deal with the issue of net neutrality - the idea that carriers should not be able to control which Web services consumers can access.

"I'm actually fairly optimistic net neutrality will land at a reasonable place," Stephenson said.

But he questioned how the FCC would achieve its proposed goal of putting Internet connections of 100 megabits per second to U.S. homes.

"If the objectives are 100 megabits capability to every home in the United States that is going to require a lot of investment. To drive that kind of investment will require a redirecting of the subsidies that exist today," he said.

AT&T shares closed down 12 cents at $24.88 on New York Stock Exchange on Tuesday. (Reporting by Sinead Carew)