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Why Verizon Killed Its Unlimited Plans

Verizon stopped offering new customers unlimited plans on Thursday, July 7. As when AT&T (T)halted its unlimited plans last June, the world will not end. It will, however, 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. It’s about demand: Because we want mobile connectivity wherever we go, Verizon is betting we will pay for it.

Verizon will now charge new customers $30 for 2 GB of data at the low end vs. $80 for 10 GB of data at the high end. The ability to buy different buckets of data is similar to the longtime telco practice of offering tiered pricing in packages of minutes. It is a good way to milk profits because consumers will generally pick a bucket that offers more capacity than they need so they don’t go over the limit.

Unlike minutes, however, a gigabyte isn’t something consumers are familiar with. It is used in Web activities whose data demands vary dramatically. This means that there is both a greater opportunity to capitalize on consumer ignorance and 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 come close to using more than 2 GB on my phone. Instead of feeling free to experiment with silly apps that could become the next Foursquare, consumers may decide to forgo trying this or that app.

If gigabyte buckets are less than ideal, what would be better? One option for carriers that worry about network congestion would be congestion-based pricing, by which carriers charge more to use their networks during peak traffic hours. A further option would be to slow the data rate after a set amount of data is used, as T-Mobile does.

Varied-Use Plans?

If this transformation is more about heightening profits than managing congestion (these are businesses after all), then I prefer plans that use more-familiar metrics and that can be changed easily. Instead of buying a bucket of gigabytes, a heavy Instagram user might choose a photo-sharing plan that allows for unlimited uploads, with merely five hours of streaming video monthly. Orange does this in several European countries and is even experimenting with personalized pricing plans for customers.

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

AT&T is bent on trying to prove that competition exists in the wireless industry as it seeks to gobble up T-Mobile. Most people realize that the wireless industry is about as competitive as if I were to challenge my four-year-old to a race. AT&T tends to move in lockstep with rivals on pricing changes and issues such as ETF fees. Sure, Verizon waited a year before following AT&T in cutting off unlimited plans. It happened though. About half a year passed before AT&T followed Verizon in charging high early-termination fees. When the two largest carriers decided they had to somewhat match Sprint’s offer of unlimited voice and data, they pretty much came out with similar, more-expensive "everything" plans.

No Classical Competition in Prices

Competitive? Maybe in the race to be less consumer-friendly, but hardly when it comes to driving down prices. 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 demanding a reasonable rate for a gigabyte. Those who love the free market should look at how fast texting grew in Europe, where it was cheaper than some voice minutes, as opposed to here in the U.S., 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.

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 doing, 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 could purchase an unlimited plan with the understanding that the carrier could shunt them to a Wi-Fi network whenever one is available?

As carriers pursue 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. That’s a shame, because such thinking slows the industry’s potential. Instead of becoming a platform for new ideas, mobile broadband has become a platform for squeezing easy profits.

Also from GigaOM:

Mobile Q1: All Eyes on Tablets, T-Mobile and AT&T (subscription required)

The Collaborative Home: An Infographic of Web Sharing

Can You Crowdsource Health Information Via Twitter?

Droid 3 Arrives as Verizon Drops Unlimited Data Plans

Facebook and Its Double Standard on Sharing

Higginbotham is a writer for GigaOM.

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