Verizon Adjusts its Wireless Plans

Verizon Wireless today announced changes to its postpaid plans, with higher prices and significantly higher data allowances, among other changes. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research.

What Verizon is doing is raising prices by a small amount while raising data allowances by a greater amount – essentially charging you less per Gigabyte, but forcing the average price paid up in the process. What this comes down to is that there’s very little growth left in the traditional parts of the wireless industry, and as such revenue growth has to come from increased revenue per user. At the same time, smartphones are nearing saturation, and so the revenue growth that’s come from people adding data plans to their accounts is also almost over.

Since carrier add-ons like mobile music and video have largely been eclipsed by over the top services like Spotify and Netflix, the only real option left to drive new revenue per line is to move people to higher tiered data plans. In some cases, that can be done organically by setting prices in such a way that people voluntarily move up, but you’re going to see more of this kind of migration to new tiers, with higher data allowances making price increases somewhat more palatable. Verizon has always had the most loyal and conservative base, which has also been more willing to pay for quality, and so it’s betting to some extent that its customers will swallow these changes too. But raising prices is always a risky business when you’re facing strong competition, especially on price.

In general, we have an increasing bifurcation between AT&T and Verizon, which are largely using their own or third party prepaid brands to compete in the most price-sensitive segments, and Sprint and T-Mobile, which are more willing to engage in price wars with their postpaid brands. Both of the larger carriers have resisted engaging in too much price competition with their postpaid brands, because that’s a downward spiral that’s really hard to pull out of.

The other changes look like they’ll give T-Mobile more ammunition as they continue to accuse the other carriers of treating their customers badly. Charging customers to be able to avoid overages through throttling is perhaps the best example of this, and I’d expect John Legere to beat Verizon over the head with that one in particular, given that this is standard practice at T-Mobile, rather than something customers have to pay an additional fee for.

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