Social Machinery

During a Barclay’s conference last week, Verizon Wireless CEO, Lowell McAdam stated that for the commericial launch of its LTE network some time this year, the company will be introducing a tiered or metered pricing data plans.

One of the biggest reasons why Verizon is choosing this approach for their next-generation network is because they expect that people will have multiple devices using the same connection (e.g. Ipad Ipod, Iphone, laptop, etc).

In that sense, the company expects to offer data connection in “buckets” of data. These buckets will have different sizes and fees attached to them. It’s currently unclear if those buckets can be change to higher or lower data amounts during a customer contract

The tiered price structure is a clear shift from the existing and wide adopted flat monthly unlimited data plans for its 3G services. By applying metered data plans, tariffs will be based on data consumption, which might discourage consumers from using big volumes of data fearing a “bill shock” at the end of the month.

From a positive side, “buckets” will benefit most of the users today who use less volume than their current plan limits. Several studies claim that more than 90% of mobile broadband users don’t consume their entire monthly quota. But the scary side is the implications for those heavy users that more and more are leveraging on the ubiquity access of mobile broadband to use their smartphones or laptops to access high-bandwidth applications such as HD video streaming or downloading big data files.

Also, Verizon stated that the cost of transmitting one megabyte of data over its LTE network would be 50% to 30% of the cost of transmitting the same data over its 3G network.

LTE network is expected to deliver average downlink speeds of 8 to 12 Mbps in a real environment. And this is one of the reasons why is becoming increasingly complex to determine future pricing schemes. With higher speed and a wide range of hungry-bandwidth applications available, current 3G plan schemes, typically capped at 3GB or 5GB will not work for LTE. As an example, a user can utilize 5GB plan with just 3 hours of video using LTE networks. If you add four or five additional devices connected at the same time is clear that mobile broadband package structure for next generation networks need to be revisited.

The challenge is that nobody knows exactly how users will behave with high speed mobile internet. Some analysts predicts that traffic usage will growth 60% to 100% due to faster throughput, as people will be able to download files faster, therefore having time for doing more things. In this context, Verizon is taking a stepwise approach giving consumers the responsibility to determine how much data they will use.

Obviously, the risk is to move internet to a Dark Age, where people were would be scared to browse or do anything on the web due to expensive connectivity pricing.  With the advent of flat fee data plans, internet grew exponentially, boosting an unprecedented ecosystem of collaboration and innovation.

Verizon’s new pricing strategy indicates a paradigm shift in wireless tariff structure. Other operators like AT&T and Sprint Nextel are also supporters of the metered pricing scheme. So, looks like the days of “all you can eat” data plans will soon be over.