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Summary:

Verizon’s pricing for its next-generation Long Term Evolution Network will likely involve a base subscriber fee plus usage charges for the bandwidth consumed on devices that need a cellular connection, said the carrier’s CTO. So will that pricing model resemble that of a utility?

Verizon’s pricing for its next-generation Long Term Evolution Network will likely involve a base subscriber fee plus usage charges for the bandwidth consumed on devices that need a cellular connection, Verizon CTO Dick Lynch told the Washington Post. So the question now is whether the pricing model will resemble that of cable services, with a high base rate and then smaller charges for premium channels, or that of a utility bill, which see users pay a tiny charge each month and then a set rate for each kilowatt consumed. Or will it be closer to that of existing cellular pricing plans, complete with high base rates and punitive overage fees?

Also, how will the subscriber be billed for myriad connected devices? I’ve talked about carriers and consumer device makers looking at personal hotspots such as the MiFi to enable consumers to subscribe to one plan while still providing cellular connectivity for multiple devices. Yet Verizon showed off cameras embedded with LTE, which would seem to require a separate subscription from a consumer.

Whatever Verizon does, the announcement isn’t a surprise given that Lynch said eventually the wireline side of Verizon’s business would moving toward usage-based billing as well. Although at the time he held the cell phone industry up as a model for what usage-based billing for wireline service might look like. Perhaps the LTE plans will be a model for all broadband billing in the future, especially since wireless carriers are desperately trying to move away from flat-rate pricing (GigaOM Pro subscription required) amid a data tsunami.

I like the idea of proving a true metered service for mobile networks (for more on what I view as a true meter, read this), and given how competitive mobile data access could be across multiple cellular providers, Wi-Fi and WiMAX, I think we could actually get reasonable pricing.

Thumbnail image courtesy of Flickr user this lucid moment. In-post image courtesy of Flickr user meddygarnet.

  1. call it what you like; it is all about more revenue per subscriber, so the formula will be designed to maximize that.

    Jeff Yablon
    Answer Guy and Virtual VIP Business Change Coaching

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  2. Stacey Your article is to the point, but I went another direction because of the huge increase suggested in the WP interview. My draft, still checking
    “Verizon’a Dick Lynch Torpedoes Broadband Plan
    Verizon’s CTO Dick Lynch is proposing pricing wireless data so high that it won’t be much of a competitor with DSL and cable. He wants to cut data allowances by 90% from today’s typical 5 gigabytes to some number of megabytes. He suggests the basic plan should be “something like megabytes a month.” Overages would presumably be far too expensive for regular use. With the typical net user already consuming 3 to 10 gigabytes a month, the wireless simply won’t be a player against DSL or cable. On the other hand, if today’s typical 5 gigabyte allowance increased over time, wireless would become a player at the low end of the broadband market. Wireless becoming a competitor is central to the NTIA/DOJ suggestions for the broadband plan.

    That’s about one hour of standard definition video. maybe 20 minutes of HD per month or about 5 typical MP3 songs a day. Put another way, 500 megabytes is about 12 minutes of use at the 5 megabit low rate for Dick’s new LTE service. With limits like that, mobile data plans will let you grab your email (without many attachments) and occasionally look up local maps on the web.

    Stacy Higginbottom at GigaOm reported Verizon had previously discussed metered billing, but after an interview with Verizon noted the 5 gig “cap may increase on LTE networks.” That’s why Lynch’s comment is significant – he’s talking about cutting the cap 90% or so, not raising it. That changes the whole game. There’s nothing in principle wrong with charging for data use – if the charge is reasonably proportional to the cost of delivering the service and a generous profit. But charging at the this level, if the other wireless carriers go along, is a blatant attempt to protect their other services. NTIA’s filing points out the likelty reason “The Commission also must keep in mind
    that the two largest US wireless providers, Verizon and AT&T, also offer wireline services in major portions of the country, raising the question of whether these providers will market these services as replacements for wireline services.”

    If his prices carry the day, the NTIA/DOJ for the broadband plan will accomplish very little. They implicitly count on wireless for competition, because new wired networks are highly unlikely and their plan doesn’t change that. Wireless voice in the U.S. is a weak cartel, data a relatively strong cartel. Lynch’s signals may inspire the other carriers to also drastically cut the basic data allowance.Or not.

    If there’s a significant cut in the 5 gig wireless allowance, then the broadband plan needs a huge redirection to measures that work given a telco-cable duopoly. That’s so tough I don’t know if D.C. can do that.

    I’m double-checking Cecilia Kang isn’t misquoting Lynch. She didn’t get any further details. Alternately, I’ll ask Verizon if the overage rates will come down out of the stratosphere. At $1/gig, an SD movie is about 70 cents. $1/gig is very high, but is a small fraction of what Verizon charges today for overage.

    This one is worth watching.

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    1. Damn, Dave. Sounds like I need to amp up my Verizon pressure, but am I missing part of the interview published elsewhere? Kang’s story didn’t indicate a cut in the cap from what I can see. Is there more content elsewhere? But I agree that a lowered data cap for wireless would make it hard to decree many areas of the country competitive — something Washington really wants to do.

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  3. this would be good for small devices like digital cameras or most things that would fit in your hand. this type of plan however would never be widely accepted by consumers for use on full blown pc. at least not one that works like they do today. it would simply be way too unpredictable. i still think that the major bulk of wireless usage will be as a replacement for the wired connection. pricing needs to keep this relevant. personally what i think would be quite fair is to meter but have a billing cap. for example charge 0.0x per MB but with the condition that the total bill would never go over $x.xx that way the customers will never get a huge bill. if network congestion is still a major issue after the LTE deployment than the best answer may be to hold back speeds to increase capacity and perhaps still have a cap but something realistic and make it a soft cap without huge overage charges.

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  4. Usage-based pricing makes perfect sense from an economic standpoint. Bandwidth costs money — a lot of it. Spectrum costs money. Tech support and billing cost money. Fancy mobile phones with Internet capability cost money.

    The problem with it is psychological: people don’t like the idea that there’s a meter running, and also have been conditioned to believe that everything on the Internet is free. (The idea that they might have to pay for it in any way — even just by paying for the network resources they use — horrifies some of them.) Sorry, folks, but there ain’t no such thing as a free lunch. Verizon isn’t profiteering when it simply asks to be paid for its efforts and investments.

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  5. [...] Will Verizon’s LTE Pricing Look Like a Utility Bill? [...]

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  7. [...] will be. CTO Dick Lynch told the Washington Post on Thursday that the carrier was looking at some form of usage-based pricing for its next-generation wireless data [...]

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  8. [...] Will Verizon’s LTE Pricing Look Like a Utility Bill? [...]

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  9. Why charge at all wimax has a flat rate and its for life 50$ for 2 devices not one and there just as fast as lte so what’s the point and charging that kind of price for low or high bandwidth users its just plan stupid since Verizon is also going after rural Americans that would really be stupid rural ppl don’t want high priced internet for one they don’t get charged extra for driving there cars do they why should we get charged more for service. I’m just saying ppl need to get it in there heads if the companies keep upsetting the consumers eventualy we will push back. Think about it if we all stop useing any services all companies lose money and some will just go bankrupt. Basically its really stupid and if lte wants to compete there will be no caps no extra fees ect. And the FCC is trying to put a,stop on all this capped stuff anyway.

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  10. [...] for bandwidth consumed.  That scenario could apply to several different pricing models, as Stacey has noted. Regardless of how, exactly, Verizon chooses to bill for 4G service, one thing is clear: High-end [...]

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