Updated: Verizon has made an art form of sending mixed messages, but it raised things to a whole new level last week when two of its senior executives made public statements that made clear the company hasn’t decided what its new mobile data pricing strategy 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 service.
However, Verizon’s CEO Ivan Seidenberg told an audience of investors the day before that the carrier will focus on selling more mobile data bundles as it tries to make up for declining voice revenue. Well, Verizon, which is it? Will wireless data be bundled or will it be usage-based?
Lynch said Verizon would likely introduce a pricing scheme in which customers will be charged a base rate for using the upcoming next-generation Long Term Evolution wireless network, and then charged another fee based on how much bandwidth they use. Yet when Seidenberg was asked about the opportunity to grow data revenue, he replied by saying that Verizon was experimenting with ways to segment pricing for data consumption. He added (emphasis mine):
Frankly, we have to address this issue long term because in the final analysis, voice dilution will continue, and we either sell bundles of data or we don’t make up that difference. So I think if you look at the drivers of it, data, 35%, should go to 50% to 60% of revenues over a reasonable period of time.
I think the unmeasured aspect of data will be video. The experts would suggest that maybe in five years, 50% to 60% of mobile traffic could be video. Even if that’s off by a little bit, it’s still a big number, so I think the drivers of more data and more bundles are there.
The key for us is to get out in front of the architecture issues, the distribution issues, and to make sure that the market — the customer is conditioned correctly to pay for the value of that. That’s been the biggest difficulty there. But I think that’s happening.
I asked spokesman Jeff Nelson about the apparent contradiction, who said: “Dick Lynch discussed potential pricing in a 4G LTE environment. We have not rolled out a 4G network, and won’t until late 2010.” He then referred me to another spokesperson who handles pricing, who didn’t return my email.
I find it hard to believe that Seidenberg is tying five-year predictions on mobile video growth to selling data bundles without taking into account the rollout of the carrier’s LTE network, planned for later this year. Seidenberg is clearly telling Wall Street that data bundles are profitable, and that if the carrier doesn’t create bundled plans it can’t offset the decline in voice revenue.
So what’s likely going to happen is that Verizon, seeking to keep data revenues high, will come up with a plan that it calls usage-based, but is really just a misuse of the term to deliver tiered pricing in the form of data bundles. We’ve seen this before as wireline and wireless ISPs attempt to implement tiered pricing under the guise that it forces people to actually pay for what they use. Time Warner Cable made this argument the linchpin of its efforts to implement tiered pricing for broadband.
So when Lynch talks about charging customers based on how much bandwidth they use, there’s no guarantee that those charges will be on a per-gigabyte or per-megabyte basis. Customers may get stuck paying a base LTE subscription fee and then have to add on an extra data bundle so they can pay for the bandwidth they use. In fact, judging by the recent data plan pricing rumors, the cost per MB for the user will go up.
Update: Maybe we’ll get some answers on this and other rumored Verizon’s price changes during a webcast tomorrow morning when Verizon Wireless President and CEO Lowell McAdam and Verizon Chief Financial Officer John Killian will “discuss wireless strategies to drive continued growth.” For those that don’t want to get up early, I’ll let you know what they say.
Thumbnail image courtesy of Flickr user caesararum