Just off the news of AT&T (T) eliminating unlimited data plans for its wired service and initiating a tiered payment system, Verizon (VZ) is hinting it’s considering a similar business model, causing speculation that unlimited data access may soon be a relic of the past.
In a shift that could boost the mobile industry’s earning while putting a dent in the pocketbook of consumers, AT&T made the first move earlier this month, with its announcement that it would begin tiered charging for data plans – with grandfathering in exceptions. Now, Verizon looks as it will follow suit at least in some respect, as it pushes its fourth-generation network technology.
Verizon isn’t announcing details just yet, but they’re clearly soon to come. Bloomberg BusinessWeek reported that the company expects an “explosion in data traffic,” according to John Killian, the chief financial officer of Verizon Communications Inc. Because of this the company will “need to change the design of our pricing where it will not be totally unlimited, flat rate,” Killian said.
At this point, Sprint Nextel Co. (S) and Deutsche Telekom (DT) subsidiary T-Mobile are staying mum, but industry insiders expect similar announcements if AT&T and Verizon see success.
Both companies cite reasons of “overtaxation” to the networks and certainly in AT&T’s case, the emergence of the Apple iPhone and iPad’s 3G data plans have only added to the burden. Considering that conservative reports estimate the mobile devices are owned by more than 70 million Americans – nearly a quarter of the population – the plan will help the companies with the problem.
The providers say they must ensure their networks run smooth as more customers switch to smartphones that connect to the internet (and Verizon doesn’t even yet have a deal to carry the iPhone, which now may not happen until 2011). Tiered data plans will put caps on the amount of data a customer has access to, but also creates business opportunity, as the quest for more data breeds higher demand. In other words, it’s another way for providers to increase charges. After all, just as users often go over their minutes, going over your data use will cost you dearly.
Analysts estimate that on average, someone using the internet for e-mail, downloads and some music toggle between 1GB and 2GB use — or even more on higher-use months. AT&T has claimed in the past that 98% of its users never exceed 2GBs of monthly data, so the tiered plan may end up saving users — instead of paying $30 per month for a 5GBs plan, they could use the $15/month 200MB plan.
The problem, of course, is that the more economic the data plans, the less access you’ll have. Though AT&T offers the bottom-tier plan at $15 per month for iPhone users, it barely allows net surfing and checking e-mail — and if you’re only doing that, you clearly shouldn’t have bought an iPhone. According to Apple’s own numbers, streaming only 30 minutes of video a day per month amounts to some 1.7GB of data use on its network.
Meanwhile, Sprint and T-Mobile could in the short term see some turnover from users who fear bandwidth limitations. With its networks — for now — underutilized compared to the competition, Sprint could reap the rewards of touting “unlimited use.” Still, even though its chief executive Dan Hesse said there were no immediate plans for a new data plan system, he told PCWorld “one can never say never.” And that one won’t, considering the financial – and network — benefits to the idea, especially if in the near future it starts seeing the same network strains the others have.
