Verizon is reportedly toying with a model for tiered pricing for wireless customers who use its upcoming fourth-generation LTE cellular network, considering ways to charge customers differently for different data speeds as well as different monthly data limits.
Company CFO Fran Shammo told The Wall Street Journal that customers might either get slower access speeds and consume more data or higher access speeds and consume less data.
Opinion’s divided as to whether or not the other wireless carriers in the United States would follow suit should Verizon make such changes, though it’s clear carriers investing in next-generation technology will need large amounts of cash to cover their costs.
Verizon Wireless did not respond to requests for comment by press time.
Verizon’s Possible New Pricing Plans
Verizon CEO Ivan Seidenberg told The Wall Street Journal that the pricing change would be made possible by the carrier’s moving to its next-generation Long-Term Evolution (LTE) network. This will be rolled out in 38 cities by the end of the year.
The LTE network, which offers data transmission rates of between 1 Mbps (megabit per second) and 12 Mbps, allows for a tiered pricing structure similar to that offered for Internet connections to the home, Verizon CFO Shammo said.
Verizon, AT&T and T-Mobile are already offering monthly payment plans with data caps for their 3G networks, which regulate how much data customers consume, but not how fast.
“This tiered pricing is meant to drive increased revenues to speed the return on carriers’ investments in next-generation networks,” Chris Hazelton, a research director at the 451 Group, told the E-Commerce Times.
Those investments are in the hundreds of millions of dollars at the very least, and carriers desperately need to ensure they recoup their money. The case of Clearwire, which is rolling out its next-generation WiMax wireless broadband network to cities throughout the U.S., is a cautionary tale — the company has cut its workforce and suspended some projects because it’s running out of money and isn’t sure whether it can raise more. Analysts have downgraded its stock.
Avoiding the iPhone Misstep
“This tiered pricing by data consumption is a preparatory step because it’s very clear that data usage will grow,” Ramon Llamas, a senior research analyst at IDC, told the E-Commerce Times. “They’ve learned from what happened to AT&T with the iPhone.”
AT&T’s wireless network has had problems keeping up with the demand from iPhone users, who consume bandwidth at a rate not planned for in that carrier’s projections. This has led to repeated complaints about the lack of bandwidth on AT&T’s network.
“Verizon’s plan is a way to manage the traffic, manage the user, and manage the user’s expectations all at the same time, and what better way to do that than through the user’s wallet?” Llamas asked.
Faster access speeds could make it more likely that users will blow through their data caps. “Next-generation networks will speed access to Web applications and mobile cloud computing, and users will need to carefully monitor their data usage or leverage tools to manage their network usage across WiFi, 3G and 4G,” Hazelton warned.
Here’s where tiered pricing may prevent trouble. Verizon will likely offer wireless customers lists of options for access speeds and data consumption so they can mix and match to get the combination they want, Llamas opined.
A Lamp in the Darkness?
Whether the other wireless carriers in the U.S. will follow Verizon’s lead if that company introduces tiered pricing by data rate is open to question.
“I find this interesting but not unexpected for Verizon,” Allen Nogee, a principal analyst at In-Stat, told the E-Commerce Times. “We’ll see if they can make it stick when things get more competitive.”
Right now, AT&T, Verizon and T-Mobile are offering 3G plans with data caps, while other carriers offer all-you-can-eat plans.
Putting caps on data consumption worries consumers, Nogee explained. “People fear overages, and really don’t have a good idea on how much data they are using,” he elaborated.
AT&T spokesperson Mark Siegel declined to say whether or not his company would follow Verizon’s lead. “I can’t speculate on what we might or might not do in the future,” he told the E-Commerce Times.
If Verizon does introduce data consumption-based tiered pricing, that could lead to a price war, Nogee speculated. “Several other operators, for example Clearwire, have already stated they won’t have caps or speed limits,” he elaborated. “Wireless broadband will be priced by supply and demand like everything else, and, with LightSquared, MetroPCS, Verizon, Clearwire and a few others, customers will have lots of choices.”
Perhaps Verizon’s move might divide the industry into two camps.
“Verizon and AT&T are in the same class — they go for post-paid customers,” IDC’s Llamas pointed out. “Sprint and T-Mobile have a significant amount of prepaid customers. How do you tier prepaid customers? I don’t know; here’s where carriers can get really creative,” he said.