Verizon Wireless’ data pricing for its 4G network—$50 a month for 5 GB of usage—already has a few analysts pondering price wars.
Verizon’s pricing on the surface is cheaper than the $60 a month charged for 3G data service.
Chistopher Larsen, a Piper Jaffray analyst, tackled the issue in a research note. The upshot: 4G pricing will have its share of competition and price wars will emerge.
Now there are a few catches with Verizon’s 4G pricing. Usage will spike so that 5 GB may be stingy.
Larsen outlines the following:
- 3G users will have to upgrade to 4G handsets for cheaper pricing. That fact benefits Verizon (NYSE:VZ).
- Verizon will enjoy better economics with its 4G network so can maintain margins at lower prices.
- Verizon seems to be betting that some folks will go with the 10 GB plan for $80 a month.
- And the LTE pricing from Verizon looks like it’s designed to squeeze Sprint (NYSE:S) and Clearwire (CLWR)
That last point highlights how we could get a 4G price war. Larsen writes:
On the competitive front, there is only one other commercially available 4G network today: the WiMAX network of Sprint and Clearwire. (We’ll ignore T-Mobile’s HSPA+ network for now.) Sprint charges $60 per month for unlimited 4G data usage, but this only includes 5GB of 3G usage per month. In light of Verizon’s price announcement, Sprint could either choose to cut its price to $50 or keep its price and highlight that customers get unlimited 4G (not 3G) usage with the Sprint plan. There are a few issues with this second option, however. One, Sprint’s 4G coverage isn’t ubiquitous so consumers may find themselves hitting a 3G usage cap. Two, Sprint’s wholesale 4G arrangement, with potentially weaker economics, may be less able to digest a price cut. Finally, Sprint may end up conceding the lowest usage (read: most profitable) subscribers to Verizon while keeping the highest usage ones, hurting margins.
Add it up and it’s early to declare a data pricing war, but it’s safe to say there will be one.