Verizon May Follow AT&T’s IPhone to Tiered Data Pricing…Yikes

June 18, 2010 - Written By Chris Yackulic

Verizon Wireless, the largest U.S. mobile-phone carrier, may follow AT&T Inc. in introducing tiered pricing and eliminating unlimited data plans this year as it moves to its faster fourth-generation network technology.

“We will probably need to change the design of our pricing where it will not be totally unlimited, flat rate,” John Killian, chief financial officer of Verizon Communications Inc., the wireless unit’s parent, said in an interview at Bloomberg’s headquarters in New York today.

The company anticipates “explosions in data traffic” over wireless networks as new phones on 4G networks incorporate data- heavy applications, such as video downloads, he said. Verizon is working to keep its network running smoothly as more of its customers switch to smartphones that connect to the Internet.

The company is finalizing new data plans for the 4G network, which is expected to provide 10 times faster data rates than older networks, and isn’t ready to announce specifics, said Killian, 55. AT&T, the exclusive U.S. carrier for Apple Inc.’s iPhone, said this month it will introduce plans based on the amount of data customers use and stop offering unlimited plans to manage the soaring data traffic.

“The more bandwidth that you make available, the faster it will be consumed,” said Craig Moffett, analyst at Sanford C. Bernstein & Co. in New York. “From Verizon’s perspective, the last thing you want is for another generation of consumers to be conditioned to the idea that data is always going to be uncapped.”

Vodafone Dividend

Verizon’s customers for smartphones, like the Droid and Incredible, are using between 600 and 800 megabytes of data per month, similar to what iPhone customers consume, Killian said. Smartphone users will make up 70 percent to 80 percent of the company’s customers “over time,” up from about 17 percent today, he said.

Verizon co-owns its wireless network with Vodafone Group Plc. So far, New York-based Verizon Communications has gotten cash out of the wireless operation through payment of a debt that Verizon Wireless owes Verizon Communications. That debt will be paid by 2011, Killian said.

To continue getting cash out of the company, Verizon Wireless may start paying a dividend to both its parents in 2012, Killian said. The companies meet in December each year to discuss their partnership, he said. The wireless business accounts for about 70 percent of Verizon’s cash generation, Killian said.

“We control the decision,” said Killian. Verizon owns 55 percent of the wireless company. “It’s a Verizon-controlled decision as to when we pay the cash out and how much we pay.