Verizon May Follow ATandT to Tiered Pricing

Comments by Verizon's CFO suggest the company is considering following rival AT&T into a tiered pricing structure for its mobile data services.

Verizon Wireless' Chief Financial Officer John Killian suggested the company may consider following a move made by rival network operator AT&T, which recently stopped offering the all-you-can-eat data plan for smartphones and iPads in favor of a tiered pricing model.

As the company finalizes plans for its 4G network, Killian told BusinessWeek magazine that the company expects "explosions in data traffic" as devices like the iPad gobble up increasingly higher rates of data.

"We will probably need to change the design of our pricing where it will not be a totally unlimited, flat rate," Killian said in the interview. "We control the decision."
Killian declined to provide specifics on how a tiered system would operate, but AT&T's revamped pricing structure could provide clues as to which direction Verizon is likely to move in. AT&T customers pay $15 per month for 200MB of data, and if they go over that figure during the billing cycle, they can pay another $15 for 200MB that's only good for that cycle. The 2GB plan will cost $5 less than the all-you-can eat plan and an additional GB is $10.
Killian said smartphones like the HTC Droid and Incredible use between 600 and 800 megabytes of data per month, and smartphone use is expected to climb to 70 to 80 percent "over time," up from 17 percent today, Killian said.

Craig Moffett, an analyst at Sanford C. Bernstein & Co., told BusinessWeek that Verizon must protect itself from the consumer notion that there is an unlimited amount of data available.

"The more bandwidth that you make available, the faster it will be consumed," he warned. "From Verizon's perspective, the last thing you want is for another generation of consumers to be conditioned to the idea that data is always going to be uncapped."

The BusinessWeek article stirred up debate over whether Verizon officials were planning to institute the new pricing structure for its upcoming 4G network only, or also for its current 3G smartphone data plans. A Verizon spokesperson reportedly told PC Magazine that there were no plans to change the 3G pricing structure.

A Reuters report earlier in June also fueled speculation over the possibility of Verizon following AT&T's lead. The news organization reported Gartner analyst Phillip Redman saying that due to Sprint Nextel and T-Mobile struggles with customer loss, the carriers have room on their networks to offer unlimited plans. AT&T, already straining with capacity issues and facing intense backlash from Apple iPad and iPhone owners, is searching for ways to massage its brittle network.
However, Nielsen wireless specialist Roger Entner told Reuters that Verizon is in a position to gain from revamping its plan. "The one that probably has to move the quickest is Verizon; they're growing and their data consumption is growing substantially," Entner said. "Verizon is very quick to respond. If they see in their numbers that the AT&T price change is moving customers to AT&T and away from Verizon, then they'll follow."