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July 11, 2011

Verizon Eliminates Unlimited Data Plans for New Smartphone Users

By Peter Bernstein, Senior Editor

As anticipated, Verizon (News - Alert) Wireless took the plunge and announced that, effective July 7, there will no longer be an unlimited data plan option for new smartphone users in the U.S. Verizon, with roughly one-third of all U.S. cellular customers, thus joins AT&T (News - Alert) (one quarter market share) and T-Mobile USA (twelve percent share) as having capped unlimited plans and moving to a “bucket of bits” pricing model for new users. This leaves Sprint (News - Alert) as the only major U.S. carrier not to do so —creating an interesting challenge for Sprint CEO Dan Hesse in his battles to stop the AT&T/T-Mobile deal  and remain a viable player. It also appears to mean we have reached a historic milestone in the history of telecom billing.

What did they do? Why did they do it? What does it portend?

The Verizon Plan: What they did

Here is the regime for new users:

  • $10 for 75 megabytes a month
  •  $30 for 2 gigabytes
  • $50 for 5 gigabytes or
  • $80 for 10 gigabytes
  • $10 for each gigabyte of data above monthly plan limits

Verizon spokespeople around the country were quick to point out that:

  • Current users of their $29.99 unlimited data plan will not be affected, and will be able to add newer smartphones to their accounts without causing them to switch plans.
  • Data plans for tablets, wireless hot spots and USB modems and other data plans will not be impacted.
  • Sending a phone message to #data will let you check in real time where you are on the plan and free text messages will be sent when customers hit 50%, 75%, 90%, 100% and 110% of their plan's monthly allowances.
  • You can even go to their website and find a data usage calculator.

Verizon is trying to reassure the market -- and eliminate possible churn, it should be added -- by citing the fact that 95 percent of their customers use 2 gigabytes of data or less each month, so even if current customers switched to a usage-based plan they would see no impact.

Why did they do it?

Remarks by company spokeswomen Jenny Weaver in the Los Angeles Times reflect similar statement to local media outlets around the country: “The big change really is that now heavy data users will pay a fair usage-based price for their data consumption when they sign up for a new data plan."

What does it portend?

The simple answer is that we are going through what will be a painful but probably necessary and over-due readjustment of business models so that:

  • Revenues and profits can keep pace costs (CapEx and OpEx).
  • Cost causers end up being the cost bearers, i.e., the vast majority of users do not end up paying for bandwidth hogs who cause inefficient and unfair allocations of network resources.

Another way of putting this is that the mostly self-inflicted financial wounds created by the shift to unlimited calling and unlimited data plans in the wired as well as wireless worlds won’t pay future bills. And, unlike governmental budget crisis, cutting spending is not an option. The only thing to do is go back to the meter.

Metering (another word for usage-based) seems to be the only path to sanity. And, whether it be the recent move by AT&T to impose a monthly cap of 150 GB on its DSL subscribers and 250 GB on its U-Verse customers in the wired world, the new wireless data plans or the push to Cloud computing (pricing by the dip), the trend is inevitable and irresistible. However, it is not without its risks.

As an industry observer and analyst, I applaud. Modern technology has given us an always-on world. It is in all of our interests for access to be affordable and those who are heavy users should pay their fair share for the costs they impose.

As a consumer, I have mixed emotions. The part of me who knows that even though I am on a family plan and we do not approach the monthly 2G limit, and who will be grandfathered in for the time being on unlimited, says:  

However, as an early adopter and a parent of kids who are going to be much more video involved, I know that things like gaming ,Google (News - Alert)+ Hangouts, Facebook video calling and the continued ascendency of YouTube, Pandora, Hulu, etc., probably mean service providers will:

  • Figure out how to move everyone off of unlimited plans in relatively short order
  • Fail to adjust upward the monthly limits to allow the vast majority of us to pay more even as the economies of scope, scale and technology drive down the cost of moving bits around

The service providers will say they need extra revenues to modernize and build new facilities in the face of what Facebook CEO Mark Zuckerberg said in announcing Facebook video calling is the exponential explosion in video that has reached its inflection point and is already taking off. To be honest, they do. However, getting the value proposition right in ways that do not hurt consumers directly, or throttle back innovation by making the usage of services that people desire more expensive (pick your favorite website), is not in the national interest.

What’s my advice? For the moment, I plan not to switch to a new data plan. I do plan on using the WiFi setting on my smartphone at home and urge my wife and kids to do likewise on the wired service we get in conjunction with our respective triple-play cable services. Think about investing in WiFi equipment manufacturing company stocks and service provider stocks as well. Revenues are on their way up and profits are likely to follow.  

What Sprint decides to do on the wireless side, and what the cable companies decide to do on the wired side in terms of using WiFi to stem their competitor’s market share growth will be fun to watch. In the meantime, the Beatles got it right.

Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens, Nortel, France Telecom (News - Alert), and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.

Edited by Rich Steeves
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