Sprint Says It, Verizon Does It!Tuesday, February 19, 2008
There has been talk within the wireless community for more than a year speculating that pricing models would be changing soon. First was Sprint’s Xohm (WiMAX) pricing model where each customer would pay a fixed monthly charge regardless of how many devices he or she had on the network, then we began hearing that one way to help manage demand for wireless broadband data would be to change current pricing models and, finally, a week or so ago, Dan Hesse, the new CEO of Sprint, made a comment about unlimited voice pricing.
Today, February 19, 2008, we have unlimited voice pricing―not from Sprint, but from Verizon Wireless. Anyone who thinks this pricing move is in reaction to Sprint’s comments needs to realize that it takes a lot longer than a week to put together a plan like this one. Verizon is changing its data pricing models as well, making it easier for the average customer to afford wireless broadband data and setting limits on the amount of data with two-tier pricing.
I find it interesting that we have come 180 degrees in pricing. Voice is now unlimited (as is text and web access) while broadband data will cost most people less money, and we are starting to see the price tiering based on data usage.
Let’s take a look at the voice pricing first. Verizon will keep its existing pricing models, including family plans, however, it is adding three levels of pricing that include unlimited voice, all domestic roaming, long distance and Mobile Web 2.0 Internet access. The first tier or basic service is $99.99 per month―not bad considering my existing plan for a pool of minutes costs more.
The next two tiers, Select and Premium, offer the same unlimited voice and Web 2.0 access, but the Select service adds unlimited messaging to anyone in the United States for $119.99 per month and the Premium plan includes unlimited messaging and V CAST Video, VZ Navigator and Mobile Email for $139.99 per month. Meanwhile, if you have a BlackBerry or PDA, the per-month price for unlimited domestic email is $129.99, and $149.99 for unlimited domestic email, text, picture and video messaging. Those who want the Verizon Global email package (no roaming charges outside the United States) will have to add another $20 to the BlackBerry and PDA U.S. pricing.
This means I can have just about everything I could possibly want for $139.99 a month and I won’t have to worry about how many minutes I am using, and when I add my BlackBerry, the total package cost will be $149.99 per month. Both of these prices are less than I am paying today for my BlackBerry and bucket of minutes plan.
Data pricing for PC Card, USB and embedded wireless in devices such as notebook computers will be $39.99 for 50 MB per month or $59.99 for 5 GB. There is an overage charge of $0.99 per MB on the 50-MB plan and $0.49 per MB on the 5-GB plan.
I suspect we will see additional data pricing models not only from Verizon Wireless but from other network operators as well. For example, I would not be surprised to see a $29.99 or even $19.99 per month plan added for lower data consumption. By the way, all of the research I have seen indicates that most business customers who are signed up for the unlimited plan today use less than 50 MB of data per month, so they will start saving $20 per month. The 5-GB plan provides a lot of data services. In its briefing call for this announcement, Verizon said 5 GB per month would equate to 75,000 5-page Word documents, 10,000 photos or 35,000 web visits per month. Yes, if you start downloading a lot of DVDs or stream a lot of video, you will probably go over 50 MB per month, but I suspect we will also see some “time of day” pricing coming. This would mean that if you want to download a DVD at 2 p.m. it will cost you an extra $X, but if you are willing to defer the download until 2 a.m. it will be included in your monthly pricing.
Back to Voice
What we are seeing is the beginning of the flip-flopping of fixed-rate services from data to voice and the pay-for-use model being deployed in the data world. This makes a lot of sense to me since data uses a lot more bandwidth than voice and bandwidth is shared―which means there is a finite amount per cell sector.
I think Verizon started the unlimited voice pricing high enough that it has room to move it lower in response to the pricing war this is certain to set off. In the airline business, when one airline raises a price, the other airlines match that price. In wireless, however, when a network operator lowers a price or comes out with a new plan (family plan, buddy plan, etc.) the other operators try to outdo the first operator. For example, AT&T came up with roll-over minutes.
Thus, this is only the first foray into new pricing models this industry will witness in the coming months and years. Buckets of minutes will give way to unlimited minutes, the cost for unlimited minutes will come down and we are likely to see pricing per person and per family, which will include multiple devices used by the same person or within the same family. By the way, Verizon was the first to say that this unlimited plan is probably not right for most families who share minutes and pay less for each additional device, but it might be right in some cases. That does not mean there won’t be other unlimited pricing plans for families and friends in the near future.
Once the price per minute barrier has been broken, and that is what Verizon Wireless has done, all of the network operators will become creative with their plans. But in the short term, I think Verizon has found a great way to experiment with unlimited voice pricing and it will see an increase in its ARPU. If only 10% of its subscriber base switches to these plans, it will have a very positive impact on Verizon’s ARPU and it will probably help with its churn rate as well. Will it help Verizon gain customers from other networks? That is hard to tell because it will depend on a number of things including how long Verizon has this pricing model to itself before someone else steps in and matches or beats it and, of course, how many customers on other networks are paying total bills that are higher than the new Verizon unlimited voice plans.
The industry belief, which seems to be substantiated by a number of surveys, is that 15% of each network’s customers account for more than 50% of the network’s income because they are heavy users, many of whom spend time outside the United States and pay a lot in roaming charges. If this class of customer is wooed over to Verizon by these plans, not only will the other networks see a decrease in their net adds each month, they will also begin to see a decrease in their ARPU. And they won’t let this happen without a fight.
Some people don’t seem to think this move to unlimited minutes for voice and tiered pricing for data by usage is a big deal. I disagree. I think this is the first step in a series of changes we will see coming to wireless, including market-based service pricing, perhaps ad-supported pricing and more unlimited pricing models. And I think the same is true for data service usage. This is the first small step in being able to better manage the flow of data over limited-bandwidth networks. It basically follows the DSL/cable models that are already in place except DSL and cable offer speed increases for higher monthly charges, but the premise is the same.
Once we become accustomed to these data pricing models, we can certainly expect to see more tiers not only based on data consumption, but on speed as well as the networks continue getting faster and, of course, we can expect transaction pricing.
I think Verizon’s move is great. It has raised the bar and shown that voice pricing models can continue to evolve and change, especially as data accounts for a higher percentage of revenue each quarter. This is a first of a kind, bold move, but it won’t be the last one we see this year―of that you can be sure.
One final thought here. I think many people who have been paying, say $79.99 a month for their wireless service and still are paying about $30 per month for their wired phone―ending up with two numbers, two voice mail boxes, etc.―will be making two phone calls real soon. The first will be to Verizon Wireless to take advantage of this new flat-rate pricing, and the second will be to the phone company to cancel their wired phone service. I wonder if the reports next year of how many wireless customers no longer have a landline phone will show a jump in percentage? My bet is they will.
Gutsy move, Verizon. You are still calling the shots, at least in the United States. Let’s see what the number one, three and four network operators come up with to counter your new pricing models!
Andrew M. Seybold