Verizon Wireless is undertaking a massive overhaul of its prices by raising fees for data services like mobile web surfing while giving everybody unlimited calls and texts, as it aims to increase data revenue and protect its older business lines.
The biggest U.S. mobile operator is also letting customers use their data allowance for multiple devices in the hope of enticing them to connect more gadgets like tablet computers to its network with the new plans as customers will now be able to avoid paying separate data subscriptions for each device.
While the venture of Verizon Communications and Vodafone Group Plc had signaled for about a year that it would offer shared data plans, it had not given any details of the pricing overhaul until Tuesday.
By including unlimited voice and texts in all plans, the company is also looking to avoid a revenue fallout as consumers have been moving away from text messaging and phone calls, the most profitable of mobile services, as they embraced web messaging.
While the new plans should increase Verizon's data revenue over time, analysts said that many of its existing customers may be hesitant about adopting the new service plans.
"It looks like it's good for people who are real heavy voice and messaging users," said Pacific Crest analyst Steve Clement.
"For folks who don't care about voice and messaging, I don't think the plans are that good because they force you to pay a bit more for unlimited quantities of something you don't want."
However, as consumers keep using more and more mobile data, through services such as video streaming, and as they add new devices to the network, FBR analyst David Dixon said he expects a revenue increase from the new pricing structure.
"It's clearly a tick upward on data pricing. That's good news for investors. That's where the growth is," said Dixon, who believes the new plans will have strong appeal to subscribers with family plans at Verizon Wireless.
Investors' reaction was muted. Verizon's stock was up 21 cents, or 0.5 percent, at $42.77.
Analysts expect the No 2 U.S. mobile provider AT&T Inc will soon follow Verizon's footsteps with a similar pricing change. AT&T executives have said that the company would move to shared data plans, but have not disclosed the timing. It declined to comment on the Verizon plan.
Sanford C. Bernstein & Co. analyst Craig Moffett described the Verizon revamp as "the most profound change to pricing the telecom industry has seen in 20 years."
He sees it consolidating market domination among AT&T and Verizon as smaller rivals Sprint Nextel, the No. 3 U.S. mobile provider and T-Mobile USA, a unit of Deutsche Telecom, may not be able to react.
In particular, analysts said the new pricing structure will appeal to people with family plans where they already pay for multiple devices, but data and voice usage varies widely between different family members.
"In a world where incentives for families favor concentrating around a single provider, the biggest providers win," Moffett said in a research note, adding that "Sprint doesn't stand a chance."
FLEXIBILITY, REVENUE GROWTH
Verizon said the new price structure will boost its revenue as it expects the shared plans to encourage consumers to connect more devices to its network than just smartphones.
Today most consumers do not choose tablets with cellular connections as they prefer to stick to more limited-range Wi-Fi wireless networks rather than pay a second cellular data fee.
While Verizon's new pricing involves a higher fee per gigabyte of data, the company hopes that the inclusion of unlimited voice and texting and the shared data element will help make the plans popular with consumers.
"What I'm doing is giving you the flexibility to share the data you've paid for," Chief Marketing Officer Tami Erwin told Reuters. "Customers who are using more than one device will very quickly see the value in this."
Today, for example, many customers have to pay extra for going over their data allowance on their tablet even though they may not have used their full smartphone data allowance. With a shared plan this would not be an issue, Erwin said.
"This is really intended to drive growth. My expectation is it doesn't change our margins," she said.
NEW FEE STRUCTURE
In some cases the customer will end up paying the same as they paid before, in some cases they will end up paying less and in some cases they will have to pay more.
For an individual user with a smartphone and a tablet, Verizon Wireless will still charge them $120 with the same 2-gigabyte data bucket and unlimited voice as a bonus.
Under the new plans available on June 28, a smartphone customer would pay a monthly access fee of $40 that includes unlimited calls and texts, and a fee of $60 for two gigabytes of data, which could be shared with up to 10 devices.
Each additional device requires another access tariff such as a $10 fee for a tablet or a $20 fee for a laptop.
Today Verizon customers pay $30 for 2 gigabytes of data and $40 for the cheapest voice plan with 450 minutes of talk time and another $20 for unlimited text messages. But if a customer also wants to connect a tablet computer, today they have to pay another $30 a month for another 2-gigabyte plan, leading to a total bill of $120 per month.
On average Verizon Wireless customers use about 1 to 2 gigabytes of data on their mobile device, according to Erwin, who said that customers' data usage keeps growing. She declined to comment on the trends for voice usage.
Verizon Wireless customers will be able to choose to stick with the existing service plans, but any new customers will be required to sign up for the shared plans from June 28 onward, even if they do not intend to connect a second device.
For example, a new customer with just a smartphone would end up paying $10 a month more under the new plan, raising the bill to $100 a month.
The biggest savings come for family plan customers who already have unlimited voice plans, according to examples provided by Verizon Wireless.
Recon Analytics analyst Roger Entner said the new pricing was a good deal for people with family plans or heavy data users. He estimated that it will appeal to the top 20 percent of mobile users while many customers may stick to their current plans.
"This is for the technorati who have multiple devices," Entner said.
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