Verizon (VZ) has officially ended its unlimited mobile broadband plan which it has offered for a bargain price of $30 per month. Starting today, the company will only offer tiered-data plans but existing customers on the old unlimited plans will be able to continue using them. However, new customers will have to cough up $30 per month for 2 GB of usage, $50 per month for 5GB of usage, and $80 per month for 10 GB of usage. Additional data once the limit is exceeded will be charged at a rate of $10 per GB.
In 2010, AT&T implemented a similar strategy in 2010 of discontinuing unlimited wireless plans, and the company saw a 23.9 percent year over year growth in wireless data revenues in the first quarter of fiscal year 2011.
Is this strategy going to work in a similar way for Verizon? Although AT&T did face a backlash when it announced tiered-only data plans, its new pricing plans have only aided top line growth. Furthermore the new data plans are only applicable to new customers, and AT&T has been able to retain their existing customers on the unlimited plans more effectively as a result.
With Verizon moving to the new plans, the same principle should in theory apply. By securing existing customers with their legacy plans, the chance of these customers going to another telecom provider decreases. With the impending merger of AT&T and T-Mobile, this safeguards Verizon from losing customers if and when a super-telecom emerges.
The biggest gainers from this move could be the other smaller telecom companies like Sprint and T-Mobile, who still offer unlimited data plans. The need for mobile bandwidth is increasing as web content and applications grow, and hence users' who feel they need the flexibility of un-tiered plans will opt for providers like Sprint or T-Mobile. Sprint is also scheduled to feature Apple smartphones in its product line-up later this year, and the absence of unlimited data plans among the major telecom companies could bode extremely well for them.
However, smartphone manufacturers like Apple or the multitude of Android and Windows Phone makers rely on content and applications to sell their products. If accessing this bandwidth-intensive content or applications becomes more expensive to the user, sales could suffer accordingly. Also, content providers like Netflix, Hulu and other streaming providers are relying more and more on mobile users to fuel revenue growth. If the costs of streaming media to mobile devices increase, these content providers will see the overall amount of content they deliver fall.
The move is a bold one on the part of Verizon, but could very well benefit its investors. Spectrum costs that telecom companies pay is also growing as the number of users rise and bandwidth demand increases. This shift in pricing could benefit margins at Verizon, and ultimately improve profitability.