Verizon Wireless Considering Tiered Pricing

Verizon Wireless is contemplating changing its pricing model and switching from unlimited data plans and to tiered pricing, the company said.

Chief Financial Officer John Killian said in an interview that Verizon Wireless will probably change to tiered pricing and do away with an unlimited flat rate. At a recent Barclay’s conference, Verizon Wireless CEO Lowell McAdam also confirmed the carrier would instead use tiered pricing programs and customers would “buy buckets of data by the megabyte.” The reason, said McAdam, was that people have four or five devices they will connect to the network.

Such a move would follow the path being taken by AT&T, which also changed its unlimited data plan earlier this month. Under its DataPlus plan, AT&T customers will now be required to pay $15 a month for 200 megabytes of data and $15 for each additional 200MB over their quota. With AT&T’s DataPro plan, customers pay $25 for 2 gigabytes of data and an additional $10 for each extra 1GB.

“Unlimited plans were the great model, almost the gym model; where you had people pay to use it but didn’t show up,’’ said Chris Hazelton, research director, Mobile and Wireless, The 451 Group. “Now people are showing up, so carriers are saying, ‘You have to pay for [the data] even if you don’t use it.’”

Killian said during the BusinessWeek interview that the decision was influenced by the explosion in wireless traffic Verizon anticipates with the launch of new phones on 4G networks and people utilizing heavier amounts of data in order to perform tasks like downloading videos. As more customers segue to Internet-enabled smartphones, the company’s goal is to keep its own network running seamlessly.

Verizon customers using smartphones like the Droid and Incredible are each grabbing between 600MB and 800MB of data every month, similar to what iPhone customers use, Killian said. And over time, smartphone users will comprise 70 percent to 80 percent of Verizon Wireless’ customer base, up from around 17 percent today, he added.

The “carrier nightmare” is trying to figure out how to price out tethering, said Hazelton, even though there are probably just a couple of thousand users connecting their mobile device to their PC to use it as a WiFi hotspot presently.

“How they’re doing it is they’re pricing it out of the market, so you pay $40 for your voice and you may pay $30 for data and pay $15 to $25 for the tethering itself … the network is not really ready for that,” Hazelton said. Just that usage alone is severely impacting the carriers’ networks, he said. “So the tethering model is definitely coming, but during that time, there will be lot of pain as people try to figure out where they fit [with data usage] and how much they’re going to use while they are getting overage charges.”

Verizon Wireless is in the midst of upgrading its networks to 4G, although details were not given. However, earlier this year, Verizon's chief technology officer, Dick Lynch, said that the company is on track to offer its LTE-based 4G wireless service in 30 to 50 markets later in 2010 and will unveil its first 4G handsets around the middle of 2011. McAdam said that with the use of LTE, Verizon’s cost per megabyte would be approximately one-third of what they are today.

In terms of other carriers, earlier this month, Sprint launched its first 4G phone, the HTC Evo. AT&T has said it would start with some commercial deployments of 4G next year, with more to follow in 2012. T-Mobile has said that though it already offers high-speed 3G access through HSPA+ (High Speed Packet Access), which it claims is as fast as 4G, it will roll out a 4G network to cover most of the U.S. by 2015.