'Fightback' Moment: Verizon Offers Unlimited Data as Wireless Competition Escalates

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Verizon had refused to offer unlimited data because of the risk to its bottom line.
Verizon had refused to offer unlimited data because of the risk to its bottom line. Credit: Christopher Dilts/Bloomberg

Verizon Communications, the biggest U.S. wireless provider, will start selling a package that includes unlimited data, a tacit acknowledgment that smaller competitors have struck a chord with consumers who want to stream video without worrying about exceeding a cap.

Verizon will charge $80 a month for a single user, $10 higher than the plan offered by T-Mobile, which ushered in the industry's move to unlimited data last year. A plan with four phones will cost $180 through Verizon, which advertised the new plans during Sunday night's Grammy Awards and will begin selling them Monday.

The move marks an about-face for Verizon, which has steadfastly refused to offer unlimited data plans for fear of obliterating the bottom line, choosing instead to focus on network quality for the highest-paying customers. But after another quarter of slowing subscriber growth, and with a new head of wireless and chief financial officer in the fold, the phone giant is going on the offensive.

Verizon shares fell as much as 1.8% to $48.08 Monday. They have dropped about 2.3% over the past 12 months, compared with a 78% surge for T-Mobile and a more-than threefold gain for Sprint Corp., which has also been aggressively pushing unlimited plans. AT&T Inc., the second-largest carrier, dropped as much as 1.5%.

"It offers a 'fightback' moment for the company," Jennifer Fritzsche, an analyst at Wells Fargo Securities, wrote in a note Monday. "With this move -- it is very much back in the conversation."

Verizon added 591,000 wireless subscribers in the fourth quarter, half as many as T-Mobile, and Chief Financial Officer Matt Ellis told analysts all options were on the table for the company's plans for consumers. Still, Verizon has a premium service that demands a premium price, Ellis said.

The company is the industry's top performer in overall quality, network reliability and speed, data and calling, according to a study by RootMetrics released in August. Verizon's network was second only in text messaging, behind AT&T.

"This announcement sends a very strong message around the strength in the Verizon network," Ms. Fritzsche said, adding that she expects aggressive advertising to focus on the premium quality of the network.

Paying the Cost

As part of the new promotion, Verizon is offering free iPhones to new customers with qualifying trade-ins. The company used free iPhone promotions for a few weeks during the holiday season to match similar offers from rivals.

The wireless industry is rapidly maturing, as most people already own phones and get a dizzying amount of offers to switch carriers. T-Mobile and Sprint have been taking customers away from Verizon and AT&T by undercutting their plans with cheaper unlimited offerings, a trend that has been embraced by every carrier. AT&T is now offering an all-you-can-eat wireless data plan in combination with a pay-TV subscription.

But while Verizon may be bowing to pressure in a bid to retain customers and spur growth, the decision comes with a cost. These promotions, as well as the separation of the handset costs from the monthly service charges, have eroded carriers' average user bill over the past year.

"You cannot make money in an unlimited video world," former Verizon CFO Fran Shammo said at an investor conference last fall. "You just can't do it because you need to generate the cash flow to keep up with your demand."

-- Bloomberg News

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