Will Customers Buy Verizon's New Price Plan?

| About: Verizon Communications (VZ)

Verizon's (NYSE:VZ) new wireless pricing plan could prove the cleverest price increase ever, if the company can convince customers to buy the lie inherent in it.

The lie? That bits cost money to transmit. They don't. The Internet is not a series of tubes. It's a collection of connections, a network of networks in which the cost of infrastructure is shared.

On the surface the plan is appealing. Your family gets a bucket of bits, and can use them on any device. Voice calls are counted as bits, but voice calls don't really take many bits. The big bit usage comes from video, and the new plan will, over time, result in big price increases for these users, because they use a lot of bits.

But for small users, for people who just use messaging, voice calls, and some Internet, the new plan is a big price hike, right away. It's $50/month. And if bits are bits - which is the idea Verizon is pushing - how then is it possible that 10 GB of bits cost $100/month?

For investors, this could mean big bucks for Verizon. It's getting a minimum of $50/month from every customer, which it can sell as a price cut because many people won't think to question it, and costs are limited because heavy users ding the network and have to pay more.

What could go wrong?

One thing that could go wrong is that competitors may copy the plan, and a price war for bits could ensue. If Verizon is charging $50 for 1 GB and $100 for 10, competitors could offer plans with small bit loads for those with feature phones, or lower-price multi-gigabit plans that include, say, wired traffic.

Because that's where this is going. Once the myth that moving a bit costs money and individual bits carry value is placed in consumers' heads, it's far more likely that dirt-cheap wired bits (on which infrastructure costs are already paid and no added investment is required) will join the mix, making video traffic prohibitive.

Which for Verizon's FiOS Internet-cable service turns out to be just perfect.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.