Verizon LTE Shared Data Plan Drives Higher Prices, Sales
Verizon Wireless isn’t feeling much price pressure these days, and third-quarter earnings tomorrow may prove it.
Just as it was closing a second quarter with record wireless margins, the largest U.S. wireless carrier in June introduced its Share Everything data plan, which raised rates on lower-budget users. That may have helped boost the average monthly bill for contract customers by 3.5 percent from a year earlier in the third quarter, according to analysts’ estimates.
With the debut of Apple Inc.’s iPhone 5 last month and 400 cities now covered by Verizon Wireless (VZ)’ fast long-term evolution network, the company is seeing a surge in sales of data- consuming smartphones. In addition, consumers are showing a willingness to pay more for quicker video downloads and better music streaming.
“The pricing environment in the wireless industry is the best it has been in several years,” said Colby Synesael, an analyst at Cowen & Co. “All the participants have been pretty steady. No one is being irrational with pricing.”
A wave of mobile-phone industry acquisitions announced in the past two weeks, involving smaller rivals such as Sprint Nextel Corp. (S) and T-Mobile USA Inc. that offer unlimited data plans, may yet put pressure on Verizon. So far, though, Verizon’s prices aren’t hurting its subscriber growth. The wireless carrier is projected to report tomorrow that it added almost 1 million new monthly postpaid customers in the third quarter, according to a survey of eight analysts.
Verizon’s Share Everything plan lets new or upgrading smartphone customers buy a monthly allocation of data -- sold in increments of 2 gigabytes -- that can be shared among as many as 10 phones and tablets. AT&T Inc. (T) introduced its own version of the plan a month later.
While the shared data plans include unlimited calls and texting, they cost more than comparable single-user data plans. The move away from separate plans for each device was meant to stem the erosion of voice and text revenue, and to encourage customers to use more data and buy larger plans.
“The biggest impact would be on penny-pinching consumers who used to go for the $70 Verizon smartphone plan,” said Tero Kuittinen, a New York-based analyst at Alekstra Oy, a mobile- diagnostics company. “Verizon slammed the door on these people and hiked the minimum plan price to $90. The gap between the cheapest possible Verizon smartphone plan and the budget carriers’ plans is suddenly a lot wider than it used to be.”
Brad Burns, a spokesman for AT&T, declined to comment on the pricing environment. Torod Neptune, a spokesman for Verizon Wireless, says the plan has been a hit.
“Share Everything has been very popular with our customers, providing them with great value and plans that match their lifestyle,” he said.
Verizon and AT&T together control 75 percent of the market for U.S. contract customers, according to Goldman Sachs Group Inc. Still, steeper competition may be on the way. In the past two weeks, there have been two deals to spur industry consolidation. T-Mobile, the fourth-largest U.S. carrier, announced a deal earlier this month for pay-as-you-go wireless company MetroPCS Communications Inc. (PCS)
Earlier this week, Tokyo-based Softbank Corp. (9984) made a $20 billion offer for a 70 percent stake in Sprint, giving the U.S. carrier money to fund a faster expansion of its 4G wireless network and to help it mount a bigger challenge to Verizon and AT&T.
Sprint may decide to stick with its unlimited data plans after the Softbank investment, offering consumers an alternative as rivals move to limited plans.
“We believe unlimited data plans are a key differentiator and have not announced any plans to move away from them,” Scott Sloat, a Sprint spokesman, said in an e-mail earlier this week.
Meanwhile, consumers can’t increase spending forever, said Cowen’s Synesael.
“There’s a finite amount of consumer discretionary money,” he said. “The growth rates on service plans won’t go on forever.”
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