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Verizon Wireless Set to Abandon Unlimited Wireless Data On Its Forthcoming 4G Network

Phillip Dampier June 23, 2010 Broadband Speed, Competition, Internet Overcharging, Verizon, Wireless Broadband 4 Comments

Verizon Wireless is contemplating the end of flat rate, unlimited data plans as it introduces fourth generation data networks this year.

“We will probably need to change the design of our pricing where it will not be totally unlimited, flat rate,” John Killian, chief financial officer of Verizon Communications Inc., the wireless unit’s parent, said in an interview at Bloomberg’s headquarters in New York.

Verizon expects “explosions in data traffic” as the company introduces customers to its 4G network, potentially ten times faster than older mobile broadband technology.  Verizon Wireless, already capturing enormous sums of revenue from consumers forced into mandatory, expensive data plans when they upgrade to smartphones, will soon discover some serious limits on those plans.

The irony is, Verizon’s 4G upgrade will bring wireless broadband speeds to consumers they realistically cannot use for much more than web browsing, e-mail, and low-bandwidth apps.  Video downloads will burn through data limits imposed at the level AT&T introduced for its customers earlier this month.

Killian

Wall Street wants consumers re-educated to believe broadband can never be unlimited and must be treated as a precious, limited resource.

“The more bandwidth that you make available, the faster it will be consumed,” said Craig Moffett, analyst at Sanford C. Bernstein & Co. in New York. “From Verizon’s perspective, the last thing you want is for another generation of consumers to be conditioned to the idea that data is always going to be uncapped.”

Moffett’s clients hope that is true because usage limits will control costs and make customers think twice about using their data features on their phones.  Reduced demand equals increased revenue, just what Wall Street ordered.

Verizon Wireless has already set the stage for that increased revenue with mandatory add-on plans that boost customer bills, especially for those buying smartphones.  Although just 17 percent of Americans own smartphones today, Verizon predicts 70-80 percent of customers will upgrade to smartphones in the next few years.  That guarantees an “upgraded” bill as well.

Estimates about current average data usage from smartphone customers ranges from 200-600 megabytes per month, but that was before the arrival of video-friendly 4G network technology and the newest generation of phones optimized for video, which can easily consume ten times as much.

Verizon recognizes the “video threat,” and press reports suggest the limits will only be imposed on the 4G network.  Current generation 3G networks make viewing video tedious, a natural barrier for customers planning to “use too much.”

Verizon’s widely anticipated limits, almost certainly to be equivalent to AT&T’s with respect to allowances and pricing, may dampen enthusiasm for the iPhone on Verizon’s network.  Any existing AT&T customer is grandfathered into unlimited data plans for their smartphones.  If those customers leave AT&T, they will be forced to take a usage-capped data plan from Verizon with no looking back.  AT&T won’t provide unlimited plans for customers returning to their fold.

Currently there are 4 comments on this Article:

  1. Danny says:

    What’s the use in having a smart phone with high speed web access if your afraid to use it??? I think Verizon is making a stupid and greedy decision here. I can have high speed internet at my house for what Verizon ALREADY charges for “unlimited” data. When L.T.E. is up and running more people will lean towards smart phone purchases. But what’s the use of having a mobile computer if you can’t use it as such? Without fear of overage charges? I don’t have internet at my house although I have a computer. I find it easier to use my Droid on the go. Listening to Pandora and casual web surfing can easily add up to more than 2 gigs a month. Verizon is going to push people away from actually wanting to use their phones. We are entering an age of mobile computing. 1ghz mini computers in your pocket. If I were Verizon I’d keep the data plan unlimited and watch how many people defect from AT&T. AT&T capped their data plan’s in response to data hogs who tether and slow down their already weak network. Verizon doesn’t have this problem. This is just greed!!!

  2. Brion says:

    The company/companies that stick to an unlimited use for a flat rate (like Sprint) will find smartphone customer flocking to them for as long as they maintain those plans. This will be Sprint’s (and other smaller carriers’) chance to take market share away from the big boys of AT&T and Verizon.

    As Danny said, mobile computing is the future and more cities are rolling out wireless WANs at no cost to the users. It is hard to say if 4G will be fast enough to drive people away from Verizon and AT&T for their unlimited mobile computing needs or if they’ll simply flock to Starbucks, McDonald’s or your local coffee shop to use the free WiFi to get fast data speeds (depending on how many people are using it and the backing internet connection).

    I’ve been going over analogies for a while trying to find one that clearly conveys why data limits are silly and with some imagination, the following example does a pretty good job.

    Imagine an Internet connection as being a highway that’s 4 lanes wide and infinitely long. The cars that drive on this highway also have a width. (For the purposes of this analogy, the cars can be represented as lines, not boxes because the length of the car doesn’t matter.) The data on the internet is like the pavement of the highway – every stone, every pebble is a byte of data. Cars travelling this highway always travel in a line, side by side, across the road and drive at the same rate (none are ahead of the others, nor behind).

    To help visualize, consider the edge of the highway as “||” and a car as “+–+”. At any given time, the highway with 4 users might look like this:

    ||
    || +—+ +—+ +—+ +—+ ||
    ||

    Now, these Internet-travelling cars have a unique property of being able to grow and shrink horizontally depending on how much free space there is on the high way and are only limited by the ISP that controls access to the highway. So if there were only two cars on the same highway as before, it might look like this:

    ||
    || +———+ +———+ ||
    ||

    The width of the card is the amount of bandwidth a particular user is using. Over the same amount of time (perhaps 10 minutes), users (cars) with more bandwidth (wider) will be able to access more data (drive over more pebbles) than smaller cars. It makes sense then that without widening the highway (increasing infrastructure) the more people that try to get online at once on the same connection, the less bandwidth each user will have and the less data they will be able to access over the same amount of time.

    Time Warner, Verizon, and AT&T all want to place data caps on your usage and charge overage fees. If we apply this concept to our highway model you can easily see that it makes no sense. The problem is our highway isn’t wide enough to accommodate everyone with a large bandwidth (wide car), but their solution is not to widen the highway, merely limit the distance you can travel on it without paying more.

    Consider the two cars sizes I have above. Let’s say the narrower one can access 1Mb every minute of “travel” and the wider one can access 5Mb every minute (because it covers more area over the same period of time). If we have a 20Mb data cap, then the small car can stay online for 20 minutes before the cap is reached, but the larger car can only stay online for 4 minutes before the same cap is reached.

    While these are low numbers, it demonstrates that with data caps there is a disincentive to having a larger / wider car on the highway of the Internet because all it buys you is less time accessing the Internet without being overcharged. Why upgrade to fiber or 4G if you can’t use it? Might as well stay with dial-up and unlimited data since no one seems to have a problem with that (except for the very real problem in the past of people being online all the time and tying up the modems so others can’t connect).

    A better solution is to sell minimum widths, not maximum data. I buy a car that is guaranteed to be no less than 5Mbps wide when the highway is full, and when it’s empty my car can grow as wide as available to take advantage of the excess unused bandwidth.

    Sprint claims to do this to a degree with their unlimited plans by saying there is no data cap, but if you use more than 5Gb/month you may find your connection speed reduced (car shortened) to allow room for others to use the limited width connection.

    So much for “brief”, but hopefully it helps someone understand why data caps, not bandwidth caps, are a foolish mechanism for control and a money grab.

  3. action jackson says:

    Dude you have way to much time.

  4. Deanne says:

    Your description is very helpful! Thanks so much!

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