Wireless Broadband: The Next, Cheap Wave?

Verizon Wireless cuts its prices as rivals prepare to offer similar high-speed Web access and less costly technologies become available

By Olga Kharif

Just in time for back-to-school shopping, Verizon Wireless has slashed the price on its high-speed mobile Internet service. Customers of the No. 2 U.S. mobile-phone carrier can now browse the Web and download Internet data on wireless laptops, using its EV-DO, or Evolution-Data Optimized, technology, for about $60 a month, compared with $80 previously.

The late-August price cut is aimed at more than adding student to the outfit's customer base. Verizon Wireless, a joint venture of Verizon Communications (VZ ) and Vodafone Group (VOD ), aims to extend a lead in wireless broadband over its closest competitors, Sprint Nextel (S ) and Cingular Wireless.

And just in time, too. Sprint Nextel is expected to roll out a comparable nationwide service in the coming months, while Cingular's high-speed Web offering is getting off the ground after earlier delays. "To remain competitive, Verizon needs to build a greater gap between themselves and competitors," says Albert Lin, an analyst with American Technology Research.


  The mobile player also needs to gird against a barrage of new wireless broadband technologies, such as Wi-Fi, available often at low cost in a growing number of airports, cafés and city centers nationwide. Then there's WiMax, which can blanket entire towns with low-cost mobile broadband and is being pushed by companies including chipmaking giant Intel (INTC ).

As the market gets more crowded, wireless service providers will have to keep prices low to satisfy fickle customers. Sprint is likely to match Verzion's lower price, says Andrew Cole, an analyst at consultant A.T. Kearney. And mobile broadband prices may drop about 10% a year in the next three years, Cole says.

Verizon's price move may signal a watershed in wireless broadband's adoption. When the carrier first began touting its EV-DO technology, some analysts fretted the service wasn't ready for prime time. By cutting prices and targeting a larger market, Verizon is signaling the service is ready for rapid growth.


  While only about 1 million, or some 2% of the company's 47.4 million subscribers, use EV-DO to connect their laptops to the Web, the service's growth rate should double in the next year as more users take advantage of the lower price, Lin estimates. With a further decline in prices, to around $40 a month, even the mainstream consumer will jump onto the wireless broadband bandwagon, says Lin.

"The prices are now low enough that this service is starting to get interesting," says Jeff Kagan, an independent telecommunications analyst in Marietta, Ga. If prices continue to drop, most wireless users will opt for faster broadband access instead of alternatives such as digital subscriber line (DSL) connections, Kagan predicts.

As that happens, Verizon needs to keep its bread-and-butter voice customers on board. That's why the wireless carrier is offering the discount to existing customers of its calling services as well as new voice users. In the future, the company will also likely bundle wireless broadband with other offerings, such as TV programming, as customers who buy multiple products tend to stay around longer, Cole says.


  Verizon had additional reasons to cut prices. At $80 a month, its EV-DO service was too pricey even for some business users, Lin says. Also, Cingular is likely to prove a tough competitor once its broadband service is more widely available, he notes.

Cingular is often able to pick from a wider arsenal of cool gadgets and phones. Typically, new devices become available for Cingular's network first and only make it onto Verizon's network six to eight months later, says Lin. In the fast-paced wireless broadband world, that's a long time for early adopters to wait.

For now, Verizon Wireless enjoys a head start -- and by keeping prices low, it's not taking any lead for granted.

Kharif is a reporter with BusinessWeek Online in Portland, Ore.