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Summary:

Verizon stops offering unlimited plans on Thursday for new customers, and much like when AT&T halted its unlimited plans last June, the world will not end. However, it will get more confusing for both consumers and developers. What else could Verizon have done?

wireless-antenna

Verizon stops offering unlimited plans on Thursday for new customers, and much like when AT&T halted its unlimited plans last June, the world will not end. However, it will get more confusing as customers try to figure out how much data they need to buy and developers wait to see what happens to their businesses. No matter what Verizon says, though, this pricing shift isn’t about supply or a lack of mobile capacity but rather about demand. In short, because we want mobile connectivity wherever we go, Verizon is willing to bet we will pay for it.

Why this pricing? Why now?

Verizon will now charge new customers $30 for 2 GB of data at the low end and $80 for 10 GB of data on the high end. The ability to buy different buckets of data is familiar to the telcos, which offered the same sort of pricing in the form of minutes for years. It is also a good way to milk profits, since consumers will generally pick a bucket that offers more capacity than what they need so they don’t go over the limit.

But unlike minutes, a gigabyte isn’t something consumers are familiar with, because it can be used for various web activities that vary in how much data is used. That means there is both a greater opportunity to capitalize on ignorance but also a chance to stifle innovation and mobile app use. Suddenly consumers will wonder if uploading that photo or watching that YouTube stream is really worth it. Heck, I do that today when it comes to streaming music using Pandora, and I never even come close to using more than 2 GB on my phone. Suddenly, instead of feeling free to experiment with silly apps that could become the next Foursquare, consumers may decide to forego an app.

A better option

So if gigabyte buckets are less than ideal, what would be better? If carriers are so worried about network congestion, then one option would be congestion-based pricing, where carriers charge more for using their networks during peak traffic. Another option would be to slow the data rate after a set amount of data is used, like T-Mobile does.

If this is more about making profits as opposed to congestion management (these are businesses after all), then I think plans that use more familiar metrics and that can be changed easily are better. So instead of buying a bucket of gigabytes, perhaps a heavy Instagram user might choose a photo-sharing plan that allows for unlimited uploads and only 5 hours of streaming video a month. Orange does this in several European countries and is even experimenting with personalized pricing plans for customers.

What about usage-based plans?

Whenever I cover pricing, a lot of people ask why we can’t just move to straight usage-based plans, where carriers charge per gigabyte or megabyte, much like people are charged for electricity. It’s a reasonable option, except that most people forget or ignore the fact that electricity is a regulated industry with the government involved in price setting, something I’d hate to see happen in the wireless industry. And the reason the government is involved? Electricity is a monopoly or duopoly in most places.

Now, AT&T is all about trying to prove competition in the wireless industry as it seeks to gobble up T-Mobile, but most people realize that the wireless industry is about as competitive as my challenging my four-year-old to a race. AT&T tends to move in lockstep on pricing changes and on issues such as ETF fees. Sure, there was a year before Verizon followed AT&T by cutting off unlimited plans, but it happened. And there was about half a year between AT&T following Verizon in charging high early-termination fees. And when the two largest carriers decided they had to somewhat match Sprint’s moves after it offered unlimited voice and data, they pretty much came out with similar and more-expensive “everything” plans.

Competitive? Maybe in the race to be less consumer-friendly, but not really when it comes to driving down prices. And since no one knows how much Verizon and AT&T pay to shuffle bits around the mobile web, it would be hard to keep them honest as it were in terms of charging a reasonable rate for a gigabyte. For those who love the free market, just look at how fast texting grew in Europe, where it was cheaper than some voice minutes, as opposed to here in America, where the carriers charged an arm and a leg for each SMS. Twitter couldn’t have flourished in that environment. Neither could ChaCha or any other service that shoots an SMS.

Could Wi-Fi help keep the flat-rate plan viable?

In general the loss of the flat-rate plan is inevitable, given the limitations of the wireless networks. But what if the wireless networks weren’t all cellular? Weaving Wi-Fi into a carrier network, as KDDI is, could change the load on the network in a way that allows for both capacity and profits. Wi-Fi networks are cheaper to deploy and are becoming carrier-grade. What if someone purchases an unlimited plan with the understanding that the carrier could shunt them to a Wi-Fi network whenever one is available?

As carriers pursue their new pricing strategies around mobile broadband ahead of faster Long Term Evolution networks and more-capable devices, they’re clearly keeping an eye on the bottom line, not pushing for American innovation in wireless. And that’s really a shame, because that kind of thinking slows the industry’s potential. Instead of becoming a platform for new ideas, mobile broadband has become a platform for squeezing easy profits.

  1. I am a Verizon customer and frankly I am enraged by this change in pricing. As you stated, it is just a matter of commodity that the public wants and their hedged bet that they can squeeze more profit from it.

    While some may argue that it is supply and demand I think that this argument is not entirely apt since S&D normally involves some actual scarcity. Not this artificial, profit hording, top-down scarcity. Verizon, like most other providers, is just refusing to adopt or even search for new business models.

    But as long as all the big kids in the class beat you up at once for your lunch money it’s supposed to be ok.

    – KFD -

    1. “this argument is not entirely apt since S&D normally involves some actual scarcity.”

      You suggest there is no scarcity. If that were so, then why would Verizon have spend billions on 700MHz spectrum? Why would Verizon spend billions on their LTE network roll-out? Why are they deploying new towers for capacity? A monopolist (or duopolist or oligopolist) would not invest in incremental infrastructure if there were no scarcity of supply.

      They do so because capacity IS scarce, and it is expected to be fully consumed in their 2G and 3G networks. Demand is greater than supply. So they invest. Billions. Now, their new billing concept is to charge those who use more a higher rate. Tiered pricing seems like reasonable economics to me (an economist), although we can debate the rate.

      Hate the carriers if you want, but do it for the right reasons. I suggest compliance with governmental warrantless wiretaps as a better cause for outrage than observing the laws of economics.

  2. Does Brett work for one of the ISPs or Verizon or AT&T?

    1. Stacey Higginbotham don Thursday, July 7, 2011

      Brett owns a wireless ISP in Wyoming.

  3. It is all about the money. Verizon / MCI increased my monthly charges for my wired phone from $30.50 ($21.99 plan) to $55.50 in 5 years. That forced me to cut my wired phone. The interesting thing was that they said “Go Green” and receive only on-line statements. Then they said “We notified you of the impending rate increases.” Only by reading the additional pages of info would that increase notification be found. I will never become a customer of Verizon (again). They are GREEDY. You don’t jack up a customer’s bill by 77% (basic charges) to 82% (total charges including fees and taxes) unless you would rather lose that customer.

  4. Keep up the good work, Stacey.

  5. Lucian Armasu Thursday, July 7, 2011

    Stacey, your first idea with congestion based pricing sounds interesting, though not sure how practical, and if the end result will be good for the customer. Many people can only use the Internet in certain time intervals because that’s when they have free time. Also I think the carriers would just get lazy and instead of improving their service, it would create the incentive to raise the prices as soon as there’s sigh of congestion increasing during that time interval.

    As for the second one with Instagram, I strongly disagree with it. Bits should be equal, otherwise we’ll get to the point where there’s a plan for Youtube, one for Facebook, and another for blogs.

    1. Lucian, I’m not in love with the plans that charge per service as opposed to per byte. But for most users that’s a less confusing way of thinking about it and if operators are transparent and people can shift there plans, I do think it could be consumer-friendly while still keeping margins for operators intact. I have a hard time thinking we can expect wireless to behave exactly like wireline when it comes to pricing. The physics (or maybe the focus on expensive gear?) are too different.

  6. Honestly, I don’t care about paying for a certain amount of data, however the tethering charges and not letting me use that data on any device I want is what’s really killing me.

    If I have to pay $30 for 2GB, then fine, but I should be able to use that 2GB on my iPhone, iPad, or Mobile Hotspot without having to be charged separately for each one. It’s like AT&T charging you for each phone you hook up to your house, or the cable company charging for each TV hooked up to your service. It’s plain old-fashioned double-dipping.

    1. Actually, the cable companies do charge per tv in some instances. If we want HD channels on our two HDTV’s, we have to pay 8.95 for each box, which, is on top of, the standard fee to deliver the signal. It is a choice, but who wants to buy an nice HDTV and watch a less than desirable picture?

      The companies are betting that the consumer won’t give up their precious experiences they’ve become so accustomed to, and, in fact, are willing to pay out the nose for it.

      Time will tell…

      1. When I first bought my nice HDTV, I was able to watch local programming in HD simply by connecting the cable to my TV. Then, the channels began disappearing and the basic plan was no longer providing anything except standard TV signals. I could get the channels through the cable company’s cable box, but they were NOT HD. I was not about to pay an aditional $15 per month for HDTV programming. They already charge a monthly rental fee for everything they own. And now I have to use their DUMB remote to change channels. THAT is ALL it does. Gone are ALL of the features of my HDTV … except for when I watch a BD/DVD movie.

    2. Jeff I could not agree more! First the ISP’s take away the “bucket” and hand out expensive Dixie cups. Then then tell you “but you still cannot use the Dixie cup however you like. No, you will need one Dixie cup for dinner, one for brushing your teeth and a third for that midnight sip of water.” And their reply to suborn all of this? “Well just get the size Dixie cup you need per device.” Why don’t just put taxi style meters on the damn devices before we leave the stores?

      Oh wait, they don’t because then we would not be overspending. Silly me …

      – KFD -

    3. Completely agree, Jeff. It’s total bullshit that the telco’s charge you an arm for 2GB of data, and when you want to use said data the way you please, they charge you your leg.

      It’s too bad because there’s really nothing the consumer can do to fight against this robbery, besides stop using all of the services… It would be a completely different picture if, as Stacey says, the wireless space was more competitive.

    4. Fine for you since you carry around your laptop (or whatever), but many of us rely on our smart phones for the times we are not at our computers.

  7. Yeah, there’s nothing AT ALL dastardly about charging more for the same amount of data. Which costs almost nothing to move and is pure profit (much like SMS).

    There’s no competition in wireless, except when it comes to who can screw the consumer harder. Fees, etc are identical between all major carriers.

  8. I disagree with this article.

    This is a cash grab, plain and simple. If it were about congestion, carriers could have just left the data plans as/is and throttle users once they’ve exceeded a certain amount of bandwidth. I’m sure the mechanisms for implementing such as system already exists (T-Mobile has demonstrated this capability).

    With tiered plans, they can now charge you for “overages” for something that you were already paying for. And with the increased proliferation of smartphones, and social/streaming media, customers are going to blow through 2GB in no time (which I’m sure is the idea).

    This smells of the same BS as the tethering argument. Charging for tethering a laptop to your cell phone would be no different from your water company charging you to hook up garden hose.

    It’s stupid.

    1. Stacey Higginbotham Brian Thursday, July 7, 2011

      Brian, I thought I was pretty clear that this was about profits, and not alleviating congestion. However, wireless is a different beast then wireline so congestion is a different kind of problem.

  9. Rick Roberts Thursday, July 7, 2011

    I want Apple to become a carrier to save us from these vultures.

    1. …wha?

      OK. Now you’re going to have to explain why you think the highest-priced hardware company in the CE industry, with the biggest margins, is the one you’ve identified as your savior from high-price network operators.

      1. Simple explanation: Fanboi.

  10. BeyondtheTech Thursday, July 7, 2011

    From unlimited to tiered to family. Better yet, I have proposed the elimination of mandatory data plans on smartphone­s altogether­.

    1. As features improve, all phones will eventually be called smartphone­s. Will the carriers continue to slap on a $10-30 and more per month for everybody?

    2. As Wi-Fi expansion from various providers improves and continues to saturate the area, while other alternativ­es such as Mi-Fi’s become more mainstream­ and accessible, individual data plans should no longer be necessary.

    3. Hand-me-down smartphone­s should not be subject to mandatory data plans. If I give my kids my old iPhones so they can use it as a gaming device and an emergency phone, I’m okay with $10 per month for the additional phone line, but not another $25 to 35 for the tiered data that could open up a can of worms on their part. I’ll supply the Wi-Fi or Mi-Fi if necessary. We also know that the subsidy of a smartphone is covered in the voice plan of a contract, not the data plan.

    4. Wireless carriers are always bitching about how their bandwidth is getting sapped up or their network is overburdened, but yet, they won’t allow users to turn off data completely. Go ahead, try it: call AT&T and see if you can remove your data plan. Go try to buy an iPhone at a Verizon store and say you want only minutes and SMS. It’s not going to happen. Why? They want their cake and eat it, too. I had to bitch to a customer service manager at AT&T, and only at that point was he able to remove the data plan off an iPhone 2G, but not even on the old iPhone 3G.

    http://bey­ondthetech­.com/2011/­04/proposi­tion-to-el­iminate-mandatory-wi­reless-car­rier-data-­plans/

    I fired off letters to the FCC, FTC, and my state legislatur­e to propose it the elimination of mandatory data plans. I want it gone. Help me get more exposure to yet another instance of unnecessary customer abuse. Don’t even get me started on SMS pricing!

    The first wireless iPhone-com­patible carrier that supports non-mandatory data plans in the US, or at least allows family data plans (and it looks like Verizon at that point), that’s where I’ll be headed.

    1. Dude. You are buying a subsidized phone, and they you are surprised that there are gotchas.

      If you want a smartphone without mandatory data, then just get an unlocked smartphone. Pay the full price, and you get all the freedom you want. You can set the APN to gibberish, and you will never lock onto ANY cellular data connection.

      Both my kids have old iPhones with $10 family plan voice connections and wifi for data, often with MyFi as you said. I jailbroke the phone to unlock them, but one could buy unlocked, too.

      I agree with you that family data plans should emerge soon, and “my family of devices” data plans, too. All of these would dip into the same bucket of data. But don’t expect a big subsidy on a smartphone not to come with strings attached.

      1. Where am I stating that I’m surprised about gotchas? All I’m saying is that when I handed my daughter a contract-free iPhone 3GS and added a dummy APN, they sent her a text message that smartphones require a data plan and automatically tacked it on. I called and they said they could only remove it if it was the original iPhone 2G.

        I’ve bought iPhones and smartphones outright, and if they were iPhones sold in the USA or AT&T-branded smartphones and USB modems, they can properly identify it the moment it’s on their network and change the plan accordingly (or at least warn you they’re going to do it). I’ve asked both Verizon and AT&T and they said it’s “impossible” to have the iPhone 4 on their network without data, contract-free or not. That definitely shouldn’t be the case, but that’s their rules.

        As for MyFi, I’m sure you’ve read about unauthorized tethering warnings that people have received and talked about, where they were threatened with changed plans as well. I don’t condone jailbreaking, but I’ve seen the warning appear on friends’ jailbroken iPhones, so these carriers are looking to cover their bases well.

      2. If you buy an unlocked phone for the full price, you still pay for the subsidy that you don’t receive. T-Mobile is the only carrier that charges less if you bring your own phone. This kind of bundling was outlawed for landlines in the 1980s, and should be illegal for wireless devices.

      3. “I’ve asked both Verizon and AT&T and they said it’s “impossible” to have the iPhone 4 on their network without data, contract-free or not. That definitely shouldn’t be the case, but that’s their rules.”

        Well, that’s new to me. I suppose I have approached it with 2G used iPhones, and had no trouble. If it is as you say, I agree with you, then.

        “I don’t condone jailbreaking”

        I sure do. It’s my hardware. I can do what I want with it. Jailbreaking is fair use of your equipment:
        http://gigaom.com/2010/07/26/what-the-new-dmca-ruling-on-copyright-actually-says/

    2. “If you buy an unlocked phone for the full price, you still pay for the subsidy that you don’t receive.” -KenG

      True, and I agree entirely. But then you’re discussing the existence of subsidy, NOT the forced data plan that BeyondtheTech is lamenting.

      Subsidy is one of the biggest control factors the carriers use. It served a purpose for lowering the barriers to get people onto cellular networks, but that purpose is now served. Now it’s just a way carriers can control the phones and the functions they offer. Samsung, Apple and Motorola don’t build phones for you and me – they build them for the operators.

      Other countries outlaw subsidies, ex: S. Korea. Still other countries outlaw SIM locking, ex: Belgium. I am very much in favor of banning SIM locks, and somewhat in favor of limiting subsidy.

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