No Surprise: Verizon Talks Tiered Pricing for LTE

Verizon Wireless 's likely move to a tiered pricing model with Long Term Evolution (LTE) should come as no surprise to anyone that has followed its plans for mobile broadband in the last couple of years.

As far back as April 2008, Verizon Wireless CTO Tony Melone was saying that the days of unlimited data plans were numbered. "You will not see unlimited flat-rate pricing on data, in my opinion, in the future," Melone said in a CTIA interview back then. (See There's a Hole in My Data Bucket and Tony Melone, CTO, Verizon Wireless.) Click on the video below to see:

Melone has been consistent on this on issue, telling The Wall Street Journal this year: "As much data as you can consume is the big issue that has to change."

Other Verizon executives have been more circumspect but admitted that a change to unlimited plans could come with LTE. "It's worth thinking about something that is usage-based, but nothing has been decided yet," Tom Sawanobori, VP of network strategy at Verizon Wireless, said on a call in March. (See AT&T, Verizon Undecided on LTE Pricing.)

Thus, Verizon Communications Inc. (NYSE: VZ) CEO Lowell McAdam's suggestion at an investor conference this week that people will buy buckets of data by the megabyte for the various devices they have on an LTE network shouldn't be too much of a shocker.

"I expect people will have four or five or perhaps even more devices they will connect to the network," McAdam said, according to The Financial Times.

The price of running data over the network will drop, however, possibly making the raw price of a wireless megabyte less for the end-user. The paper notes that McAdam said that the cost of a megabyte of data over its LTE network would be half to one third of the cost of carrying the same data over the company's current 3G CDMA network.

The twist being that the average download speeds of 5 to 12 Mbit/s that Verizon is promising for its LTE network are around five times faster than averages and peaks over its 3G network, meaning that a user could potentially use a lot more data over the new network. So, it is possible that bill shock may not become entirely a thing of the past with LTE.

— Dan Jones, Site Editor, Light Reading Mobile

joset01 12/5/2012 | 4:34:31 PM
re: No Surprise: Verizon Talks Tiered Pricing for LTE

It would be interesting if they could you bandwidth streams and an "all-access pass" kind of setup. Whatever Verizon is going to have to find good ways to advertise LTE services to explain a tiered system to users that have lived with unlimited plans for so long.

lroberts 12/5/2012 | 4:34:24 PM
re: No Surprise: Verizon Talks Tiered Pricing for LTE

We have learned over the 3 decades of packet network service sales (Telenet (75-93, Internet 93-now) that users (and company controllers) like unlimited use service plans and hate usage based service charging. The proposals for byte count usage caps or charging by the usage ($/GB) are guaranteed to cause users to go elsewhere or, if nowhere to go, sharply limit usage. 

Unlimited use charging but with multiple tiers was what made the Internet take off. In the past, the tiers were based on the peak bandwidth of the access line (56 Kb, T1, T3, etc). However that is not sufficient today since users need high peak rate always and it is hard to limit in Wireless. There can be different rate caps, but today's devices will still overload a wireless cell no matter what their rate cap. 

Therefore the ideal charging method for wireless is to sell unlimited service in tiered levels where the levels are based on average use during peak usage periods. For example a two tier model might have the Basic Tier allow 250 Kb/s average use during peak usage periods and the High Tier allow 1 Mb/s average use in the peak usage period. The actual bandwidth need not be committed but the High Tier user would receive 4 times the bandwidth when the cell was fully loaded. Clearly there could be more tiers as well. Every user would have high peak speeds allowed and received when the cell was not overloaded, but when the cell was loaded, everyone would slow down together. The Basic tier users would all receive the same average capacity and the High tier users would all be allowed 4 times that average capacity.

With this charging model, all users would have a flat charge per month but if the found they wanted more capacity in the peak periods, they could move up to a higher tier with a higher monthly charge. The management of this is relatively straight forward and is already available and in traffic management equipment like the Anagran FR-1000. Internet users are used to this model and generally love it.


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