Verizon shared data plans reset wireless economics; AT&T to follow

Verizon shared data plans reset wireless economics; AT&T to follow

Summary: Verizon's move alters the economics of the wireless business by aligning revenue with network capital spending. And rest assured that AT&T will follow a similar model.

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TOPICS: Verizon
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Verizon this week outlined new shared data plans that raised a bit of a ruckus among the prosumers that woof down gigabits in big chunks. In a nutshell, Verizon ended grandfathered unlimited plans and introduced shared family data plans.

Needless to say, Verizon's moves caused a bit of consternation. CNET's Roger Cheng noted that consumers may be getting a raw deal. For my personal account, I'm pretty sure I'll wind up paying more.

CNET: Verizon unveils 'Share Everything' family plans for dataHoping to keep your Verizon unlimited plan? Here's how | ZDNET: Verizon's new Share Everything plans; setting the bar for family plansVerizon offers buckets of data with the Share Everything plan

In a nutshell, all devices in a family will have unlimited voice minutes, texting and data. Smartphones, modems, phones and tablets are included. Verizon is pricing 1GB of data in $10 increments so there's a $50 a month plan for 1GB and $100 for 10GB. If you had an unlimited data plan with Verizon for $30 a month you'll want to hold on to your grandfathered phone forever.

But then there's the business justification for the move. Verizon's move alters the economics of the wireless business. And rest assured that AT&T will follow a similar model.

What's the goal of shared data plans? Simply put, Verizon moved to align revenue with its network investment. A few Wall Street analysts were gushing about Verizon's plans because they improve return on invested capital (ROIC). Verizon made voice and texting unlimited since they were both in decline and hurting revenue per user anyway. Instead, Verizon will charge by the data usage, which will see hockey stick-like growth.

Macquarie analyst Kevin Smithen called Verizon's move "brilliant" and "one of the most important developments in wireless in years." Smithen also noted that Verizon has "once again redefined the economics of mobility and paved a path to sustain economic profit/GB after LTE conversion benefits begin to subside in 2014."

As you can tell, Smithen was a bit excited about Verizon's new wireless math. If Verizon's move plays out as expected, terms like ARPU (average revenue per user) will become less important. Revenue per account will be the metric that matters.

In other words, Verizon needs to keep data service profitable since it'll have to build out its network. The company's voice network will barely be touched going forward.

Here's Smithen's projections:

Verizon now can ensure data profits and collect more revenue as usage goes. Given that LTE networks are more efficient, Verizon should be able to hold the line on costs.

Barclays James Ratcliffe also noted that Verizon is aligning revenue and costs.

Ratcliffe said in a research note:

The new plans effectively make family plans unlimited voice and text. For a two smartphone family plan the previous floor was $130 ($70 monthly access, $30 for 4Gb data for each smartphone). This floor remains in place at $130 ($40/line for smartphones plus $50 for 1GB of data), but the mix has shifted, with unlimited text and voice now included, but the data available at that price point down to 1GB from a total of 4GB.

Given that new plans offer unlimited voice and text plans, but charge customers for incremental data usage, we believe plan pricing is now better aligned with Verizon's actual network opex and particularly capex. Voice and text have very little incremental cost, and likely minimal associated capex.

Besides, data is the future. Piper Jaffray analyst Christopher Larsen said:

The move insulates Verizon from alternative voice messaging options that run over the data network (like iMessage and Skype). The plans include unlimited voice and messaging (which may see declining usage in the future) for a fixed fee while they charge for incremental data use (which is expected to increase). With these plans, we expect ARPU to rise with increased data usage. Second, the plans make it more attractive to add additional devices like tablets and USB sticks. Finally, the plans can act as a retention mechanism; as customers add multiple devices, it becomes more expensive (and less likely) that they will churn.

Add it up and the economics work nicely for Verizon. User economics will vary. My guess is that many of us will be looking to offload to Wi-Fi networks. Economic models don't account for Wi-Fi usage as everyone tries to stay under a certain data tier.

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Topic: Verizon

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44 comments
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  • Wait...whu?

    So Verizon is basically cutting a Family Plan's allotment of data down from 4Gb to 1Gb while keeping the same price and the trying to justify the move by explaining "yeah, but your whole family gets to [i]share[/i] that 1Gb!" And AT&T is set to follow?

    LOL, good luck with that one! This might be a good time to invest in Sprint or T-Mobile.
    dsf3g
    • Pay more, get less

      That's their greed motto.
      CaviarBlack
      • RE: That's their greed motto.

        No, you have that wrong, it is:

        [b]B[/b]end
        [b]O[/b]ver
        [b]H[/b]ere
        [b]I[/b]t
        [b]C[/b]omes
        [b]A[/b]gain!!
        fatman65536
      • Good one!

        Never bend over to corporations. Especially the telephone companies.

        Greed is JOB 1
        CaviarBlack
    • wish i could find a better deal. with at$t buying t-mobile and sprint

      running out on us a few years ago, Verizon/Alltel is pretty much the only deal to be had.
      we are paying dearly for that industry monopolization that our government and ecosystem are so fond of.
      they disguise the greed with easy euphemisms like "standards" and "free".
      while all the time the shaft goes deeper into the pocket book.
      they can take their plans and _ _ _ as far as i'm concerned.
      the greed mongering analysts may like it.
      let's see how the consumers like it.

      :(
      .
      wessonjoem@...
      • ATT is not buying Sprint

        I really hope this move, helps out the METROPCS and BOOST mobiles of the industry we need more options to keep the greed mongers honest, currently with Sprint as long as they dont pull a shenanigan like this I wont be leaving
        SFTechGuy
      • AT&T

        is NOT buying T-Mobile or Sprint.
        NonFanboy
  • This reasoning

    This reasoning is exactly why I ditched Verizon for AT&T!

    Not only does AT&T give me 3 gigs of data on any single phone, they give me unlimited Mobile to Mobile anytime! in this day and age, that is a practically unlimited a,ount of voice.
    slickjim
    • I have to use VZW for work

      But it's still a crappy deal. I had considered leaving AT&T for VZW with my personal phone and my family's phones but we'd be paying a lot more for less. If AT&T follows suit we might be going to Sprint instead.
      NonFanboy
    • just wait

      at&t is going to the SAME exact model as Verizon. So don't put at&t up on some pedalstal
      BCF1968
  • Limit the Impact and Penalize.....

    So they have found a way to limit the impact of VOI and similar services and at the same time penalize you if you expand the use of these via data cost.

    Very very interesting.
    Isn't this designed to artificially restrict the use and growth of VOI and similar services?

    As this is designed to encourage users to find alternative data connection options, I think that this may have a negative affect in the mid to long run.
    I wonder if they are betting that a cost effective alternative for LTE/4G wireless data they can implement...
    rhonin
    • It's all data

      Ever since phones went digital the carrier's backbone just see bits anyway now. At a 4khz voice channel the uncompressed bitrate is only 60kbps theoretical (60,000 bps). Remember 56k dial up modems? This is why. It's a tiny portion of data compared to 15Mbps LTE (15,000,000 bps) that phones suck down today. They can give away voice and all the 160 byte sms messages you want as they don't impact the network.
      LarsDennert
  • The world will go backwards...

    I'm already trying to weigh the pros and cons of having a cell phone in the first place. Verizon makes a greedy piggy move every few months for the money grab, and the other companies follow suit with their porky little fingers just itching to reach deeper into our pockets. I'm sick and tired of this crap. Between the cell companies and cable companies, I think I've had about all I can take.

    Buy a Cricket phone and pay as you go? I don't know, but do we REALLY need our e-mails on the go? I guess the answer will show in how fat this porker cell phone company gets.

    I loved how the representative of Verizon stated that he believed "everyone would win by this change" (what he meant was "except the customer"). This was also in answer to losing customers. Really Verizon? So the way to fix a drop in loyalty is to bend the customer over? REALLY??

    Screw Verizon, Screw AT&T, Screw Comcast... We should all turn out the lights and send these little piggies a big single finger salute. We have (and consequently, they have) forgotten this isn't a NECESSITY we're talking about. We did survive (believe it or not) before these piggies knocked on our door.
    thoiness2
  • Unlimted Voice, but Data allowance sucks ass.

    Unlimted Voice, but Data allowance sucks ass. 10Gb shared by a family, esp. on LTE, with phones/tabs etc will be busted regularly. Don't Verizon get it - 4G means increased data usage, not less.

    In the UK the trend is again Towards unlimited data with a small extra allowance to give truely unlimted data, inc tethering, and also at a cost way below the rather pricey US cell tarriffs. Fair enough, they are still bitching over 4G spectrum allocation, but at least tarriffs are not extortionate.
    neil.postlethwaite
    • Verizon gets it...

      And they're counting on it. The overages on a 1Gb data plan would be enough for a family to go bankrupt, while the 10Gb plan will be enough to suck up the entertainment budget for most families.

      Verizon isn't stupid. They're betting the farm that their customers are, however.
      thoiness2
      • Ughhhh....

        Such ignorance of the wireless industry...

        I'm not defending Verizon's decision to reduce the allotted data by 3/4 and charging you the same price.....but the idea that wireless carriers make money from overage fees, or that they try to force people to get an overage so that they can charge them an overage fee.....is just so ignorant.

        First of all, and I say this as one who worked in the wireless industry for years and is 'in the know' about what goes on....the truth is that overage fees are almost never actually paid. What happens is that the customer gets charged an overage, then gets uber pissed and calls customer service, customer service explains the problem, provides various solutions, and then offers that if the customer will agree to do x,y,z to fix the problem that the overage fee will be waived. 90% of the time the customer calms down, agrees to do x, y and z, and the fee is waived. Overage fees are not a source of revenue because they are rarely ever actually paid.

        Second, the purpose of an overage charge is to change a customer's behavior. And the reason why they are charged so often is because experience shows that they are an effective tool to change customer behavior. The point of an overage is not to make money by making people go over their allotments, the point is to change customer behavior so that they never go over and the fee is never charged. If the fee ends up ever getting charged, then the overage fee has failed in its purpose.

        Note, again, I am not defending Verizon's decision here....I'm pointing out that the idea that overage fees are a significant source of revenue for carriers is complete and utter poppycock.
        Doctor Demento
        • Really

          Doc do you really think that Verizon is being altruistic by having overage fees? Moreover, do you really think that they don't make money on them? I find it hard to believe that even a simple majority take the time to call about overage fees.
          Newsom02
    • Oh Verizon gets it

      Under these new plans overage fees are $15 per GB. So they'll either get more money by people upgrading to the highest possible data tier to avoid overages or they'll be getting the overage fees.
      BCF1968
  • I will say it WTF

    Verizon just s*rew their customers. I am with ATT and I have a bad, bad feeling.
    davidmpaul
    • AT&T will do the same

      It's just a matter of time.
      CaviarBlack