Why Verizon Had To Rethink Its Unlimited Strategy

Last week, Verizon (NYSE:VZ) made some changes to its popular unlimited plan, dividing it into three different offerings called Go Unlimited ($75 for the first line), Beyond Unlimited ($85), and Business Unlimited. Unlike the reasonably straightforward $80 plan launched earlier this year, the new plans have a significant amount of fine print that includes caps on video resolution and stricter throttling policies. Below, we look at why Verizon made changes to the plan and what it could mean for the carrier.

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Unlimited Plans Stressing Verizon’s Network? 

While Verizon hasn’t really been a proponent of unlimited plans (it was one of the first carriers to shift to tiered offerings), it launched an unlimited offering priced at $80 this February, bowing to competitive pressure from T-Mobile and Sprint. The plan saw strong uptake, helping the carrier add 358k postpaid phone subscribers over the second quarter. However, it appears that the plan, which offered full HD video streaming (1080p), caused network congestion, degrading Verizon’s network performance. A report from Ookla indicated that data speeds on Verizon slowed by 14% since it re-launched unlimited data. Moreover, with unlimited plans, data consumption keeps increasing, calling for more capacity. However, revenues and cash flows are capped, as these plans don’t have any overage fees, putting pressure on a carriers’ network investment plans.

Verizon Looks To Limit Data Consumption

With the new Go Unlimited plan, Verizon will cap video streaming to 480p on smartphones, while also throttling data speeds at any time when the network is congested.  The Beyond Unlimited plan will see video streaming limited to 720p on smartphones, with throttling taking effect when the network is congested only after subscribers have exceeded 22 GB of data consumption over a billing cycle. Verizon also intends to limit the video resolution for all its customers, including legacy unlimited users and tiered plan users, to 720p.  While the move could irk some customers, it should have a meaningful impact on the carrier’s network load, as the video is typically the biggest bandwidth hog. For instance, 480p video consumes less than one fifth of the capacity of a full HD video, while a 720p video consumes less than half the bandwidth of a full HD video.

Move Could Help Postpone Network Densification Investments

Verizon has limited its investment in 4G spectrum, as it didn’t acquire any airwaves during the FCC’s 600 MHz auction, and its last major spectrum acquisition was for the mid-band AWS-3, almost three years ago. The carrier has been refarming spectrum from CDMA to LTE, and it appears to have reached a saturation point in some cities. This means that Verizon may have to increasingly deploy small cells to densify its network and meet growing needs for data. However, the carrier could be postponing the need for 4G densification, by throttling data usage on its current unlimited plans. The move could also allow the carrier to focus its capital expenditures on the so-called millimeter wave spectrum as it prepares to build out its 5G networks.

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