Verizon Wireless Wants to Compete on Features But Not Price

July 6, 2016, 5:00 PM UTC
A Verizon Communications Inc. Store Ahead Of Earnings Figures
A customer browses smartphones in a Verizon Wireless store in San Francisco, California, U.S., on Wednesday, April 15, 2015. Verizon Communications Inc. is scheduled to release earnings data on April 21. Photographer: David Paul Morris/Bloomberg via Getty Images
David Paul Morris — Bloomberg via Getty Images

Verizon Wireless built an impressively profitable mobile business by pitching itself as the most reliable high speed network, not the cheapest. Now the carrier is hoping it can fend off increasingly aggressive rivals with new features and higher prices.

On Wednesday, Verizon overhauled its main offerings for monthly customers, increasing most data allowances by 33%, adding a rollover feature for unused data and cutting prices for using phones in Mexico and Canada. But it also raised its standard monthly charges on all the new plans by as much as 17%.

For example, a 6 GB plan that cost $60 per month will be replaced by an 8 GB plan that costs $70. As with the prior plans, the data can be shared across up to 10 devices, with additional required charges of $20 per month for each smartphone line and $10 for tablets. Existing customers won’t be required to move to a new plan, Verizon said.

The revised strategy, call it “more for more,” comes as smaller carriers Sprint (S) and T-Mobile (TMUS) remain intensely aggressive. Just before Verizon’s (VZ) Wednesday announcement, T-Mobile offered half off for new lines added with 5 GB of data on its prepaid MetroPCS brand. And Sprint has been blanketing the television airwaves with advertisements for its promotion of rates that are half the fees charged by competitors.

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But Verizon executives say that customers will pay for the increased data allowances and superior quality of their network.

“Customers are using more and more data on our network,” Nancy Clark, senior vice president for marketing and operations, said in an interview with Fortune. “We needed to build bigger data plans and the value is better than ever.”

Over the past three years, Verizon’s smartphone customers have gone from using an average of 1 GB per month to 2.7 GB now.

“This is in no way a price increase,” Clark added. Measured by the amount of data customers get per dollar charged, the new Verizon plans represent a better deal that the old plans, Clark noted. The old 6 GB plan at $60 cost $10 per GB. The new 8 GB at $70 plan works out to only $8.75 per GB, a 13% drop, for example. And existing customers can keep their old plans if they wish, she said.

Like its larger mobile rival, AT&T (T), Verizon lately seems to be at least partially following the successful playbook for gaining customers crafted by T-Mobile CEO John Legere and his team. Many of Verizon’s new features, including data rollover, eliminating high roaming fees in Canada and Mexico, and the end of overage charges (instead slowing the speed of data after an allowance runs out), were pioneered by T-Mobile.

Right at the top of its announcement of the new plans, Verizon said it was “solving customer pain points like fear of overages and bill uncertainty.” Almost two years ago, when T-Mobile introduced a data rollover feature called data stash, Legere called the overage fee a “pain point of staggering proportions.”

Unlike T-Mobile’s implementation, however, some of the new Verizon features won’t apply to all monthly customers. Subscribers on the new $35 to $70 per month plans, for example, will have to pay another $5 per month to avoid overage fees via the new “safety mode” option. They also don’t get the use of their calling, texting, and data without additional charges in Mexico and Canada. Instead, they’ll continue to need to pay $2 per day under Verizon’s TravelPass feature.

Asked on call with reporters why the cheaper plans had to pay more for some features, Verizon’s Clark said customers on more expensive plans were more likely to benefit. “What we see is that customers who have higher data plans use more data and are the customers that really are the ones that can benefit from things like safety mode,” she said.

T-Mobile CEO Legere picked up on the additional charges in several tweets he made critiquing the new plans. Verizon “creates pain points, then charges more to solve the pain points created. Where have I heard this business model before?,” he tweeted, adding the hashtag #Sopranos.

Verizon’s gambit reflects the saturation of the U.S. mobile market, where there are already more phone lines than people, as well as a fear of igniting a price war, analysts said. “There’s very little growth left in the traditional parts of the wireless industry, and as such revenue growth has to come from increased revenue per user,” says Jan Dawson, chief analyst at Jackdaw Research. “But raising prices is always a risky business when you’re facing strong competition, especially on price.”

Verizon also said it was overhauling its smartphone app that customers can use to monitor their usage, add or change plan features, and pay their bill. Using the app, customers will be able to switch among the various data plans at anytime with no penalty, Verizon said.

For more on Verizon’s recently settled strike, watch:

The carrier also said it would allow customers to connect certain kinds of smart devices, including smartwatches and Verizon’s Hum car monitoring dongle, without counting against the 10 device per account limit. Such connections will still cost $5 per month, each. Not many smartwatches yet connect directly to mobile networks, but that’s likely to change over the next few years.

Meanwhile, expect Verizon’s competitors to maintain the pressure.

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