Verizon Looks To Substitute Unlimited Plans With Shared Data Plans For LTE

Verizon (NYSE:VZ) is planning to eliminate unlimited plans altogether as ‘grandfathered’ customers on unlimited 3G plans upgrade to its new 4G LTE network. Speaking at an industry conference held March 16th, Verizon CFO Fran Shammo said that subscribers on the $30 per month unlimited 3G data plan will have to ditch their plans if they want to migrate to 4G LTE and take up a tiered shared data plan instead. ^[1] Unlimited plans have become highly unprofitable for Verizon and AT&T (NYSE:T), both of which stopped offering the plans last year as their networks crumbled under the huge data load of smartphone users. As 4G LTE becomes the new standard and spectrum gets scarcer, Verizon will be looking to kill these plans completely and monetize every last byte of data that is transferred on its network.

See our complete analysis for Verizon here

Move will decrease capital expenses

Verizon and AT&T have both moved to throttle the highest 3G data users in recent times, claiming that the move affects only the top 5% of their subscriber base. This small fraction of the subscriber base are the unlimited data subscribers and will be the most willing to jump to LTE for the higher speeds that the technology affords. Using the 4G technology as well as its market-leading LTE coverage as a bait, Verizon will be looking to gradually eliminate this problem child altogether.

Since the move does not affect a vast majority of its unlimited plan base that use lesser data than the corresponding similar-priced tiered data plan, it is not a high risk strategy for Verizon. On the other hand, if Verizon had chosen to continue the unlimited plans for LTE upgrades, the small proportion of the unlimited data users would have taken advantage of the higher speeds to use an even higher disproportionate amount of data. This could have forced Verizon to spend even more aggressively on its 4G capacity improvements than it had to do on 3G. Verizon has seen its capital expenses mount over the past couple of years as it has spent on improving 3G capacity as well as rapidly rolling out LTE in new markets. It will now be looking to control its capital spending now that LTE is available in many U.S. markets.

While increasing ARPU levels

The bet on LTE might work after all as Verizon has already milked the data demand enough with its 3G network. Now that the demand for data services is exploding but the supply of wireless spectrum is limited, Verizon will be looking to wrestle back control of the data plan pricing. Verizon is planning to offer shared data plans instead of the unlimited plans as it gives the carrier more control over how much data it can afford to offer for a particular price without straining its network. The shared data bucket will also be beneficial for most users as they will be able to use multiple devices in the same data bucket, potentially decreasing the per device cost for the user. It will also allow a more efficient allocation of resources as against earlier when a few high data users used to clog the network to the detriment of the rest.

However, Verizon needs to get the balance right. While the shared plans would lessen customer churn as well as allow more number of mobile devices to connect to the network thereby earning Verizon more revenues than earlier, pricing the plans too aggressively might lower the average fee per subscriber while increasing data traffic and therefore the cost of maintaining the networks. Done right, Verizon could see higher ARPU levels in the coming years as subscribers increasingly use data intensive applications on its speedier 4G network and the carrier is able to monetize every byte of data that the subscribers use with its tiered data buckets.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Verizon will kill ‘grandfathered’ unlimited data plans, push users to data share, FierceWireless, May 16th, 2012 [↩]