The true impact of Verizon and AT&T's new unlimited plan pricing

The following is a guest post by TC2 managing director Ben Fox, who is based in London.

On Friday Verizon Wireless announced that, starting tomorrow, it will be offering its suite of unlimited usage plans at $30 per month less than before. For example, Verizon's Nationwide Unlimited voice plan will now be available for $69.99 instead of $99.99, and its Nationwide Unlimited voice and text plan will now be available for $89.99 instead of $119.99. Just hours later, AT&T Mobility reduced its equivalent plans by the same amount in order to retain its pricing parity with Verizon Wireless' unlimited plans.

Such unlimited plans have made some limited penetration into large enterprise users, so this price reduction will have a small impact on the bottom line of big companies. But the more interesting question for now is what does this move from Verizon Wireless tell us about its broader pricing strategy? And what does this mean for enterprise customers rather than individual consumers?

The answer is that Verizon Wireless apparently intends to use the new, lower-priced plans to upsell customers to unlimited data plans. In fact, Verizon Wireless CEO Lowell McAdam has been quoted as saying that "this is about data in my view" and Verizon's pricing moves "will drive penetration of data services."

Of course, wireless carriers the world over have been presenting data usage revenues as their priority for many years, but it is interesting that Verizon Wireless appears to be publicly acknowledging that it is willing to cut its voice pricing in order to win more data business. And this is particularly important for enterprise customers to take note of -- for many large companies over half of their wireless lines are now voice and data converged devices, whether BlackBerry, Windows Mobile, iPhones or some other smartphone. Hence a strategy from Verizon Wireless of reducing its voice plan pricing in return for data revenue growth is particularly relevant for enterprise buyers who typically have high spend on wireless data services.

We certainly intend to leverage this in negotiations we are currently involved in with our clients. Over the past twelve months Verizon Wireless has been lagging behind its competition in enterprise deals, not least because of an unwillingness to be competitive on voice plans. We hope that Friday's announcement signals a change of heart from Verizon Wireless that will lead to increasingly competitive offers for enterprise customers, which would ultimately achieve Verizon Wireless' objective of increased data revenues because so many enterprise users have converged devices.

Despite Verizon Wireless' statements that "this is about data", it is notable that Verizon Wireless did not reduce any of the incremental costs of adding unlimited messaging and data to users' voice plans. In business settings, usage of messaging and data services is growing much faster than voice usage, but Friday's announcements from both Verizon Wireless and AT&T Mobility offered no changes to standard pricing for messaging and data add-ons.

There is also the question of whether or not the $30 reductions to the unlimited plans brings them down to a price point where it makes sense for enterprise customers to roll them out to a large proportion of end users. For now, except for companies with exceptionally high average usage levels, the answer would appear to be no. The lower price point does reduce the breakeven point between unlimited plans on the one hand and pooling and flat rate plans on the other, such that the unlimited plans will make sense for a somewhat larger number of end users. But most companies' average usage will still be considerably lower than this breakpoint.

One of the reasons for this is that the unlimited plans, from both Verizon Wireless and AT&T Mobility, do not benefit from the overall discount levels that enterprise customers negotiate, but pooling/shared plans do receive such discounts -- hence the discount raises the breakeven usage level at which unlimited plans cost in.

So fundamentally, this price decrease to unlimited plans does not yet get close to the holy grail of being able to put all users on a single unlimited plan and never again needing to think about which rate plan is most cost effective for which user. That means that rate plan optimization remains as important as ever. Kathy Buffalow, a wireless rate plan optimization specialist at eOnTheGo, notes that even where voice usage is reasonably well understood, there are huge cost optimization opportunities from examining messaging and data costs.

"Taking the costs of plans that bundle messaging and/or data usage and comparing them to messaging and data bolt-ons, plus determining which users should be provided with unlimited data and messaging features versus which users only need a lower cost limited usage messaging/data add-on, is no mean feat," Kathy points out. "Since none of Friday's announcements reduced the incremental cost of data and messaging bundles and add-ons, coupled with business users' continued growth in data and messaging usage, optimizing these costs remains as important as ever."

Friday's announcements may herald a new level of competitive aggression from Verizon Wireless, but only if the cuts we've detailed to the unlimited plans also filter through into Verizon Wireless being more competitive in other areas too. We'll be keeping you posted on what we see over the course of the next few months.