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How Verizon Could Be the Big Winner From Unlimited Data Plans

March 6, 2017, 2:21 PM UTC

Verizon’s surprise decision last month to offer unlimited data plans may be part of a strategy to overwhelm competitors’ wireless networks with traffic, a leading telecommunications analyst says.

Verizon has invested by far the most among the four major wireless carriers in adding capacity to its network through new cellular sites, particularly smaller sites that can be deployed close together in crowded urban areas, Craig Moffett, analyst at MoffettNathanson, noted in a report on Monday.

Verizon’s new unlimited plan didn’t offer the lowest price, but it did offer full high-definition quality for streamed video. Video is the fastest growing activity on mobile networks and accounts for a significant share of all traffic.

Sprint, T-Mobile, and AT&T had all previously downgraded customers’ video streams to DVD-quality by default to save bandwidth. AT&T (T) allowed customers to opt for higher-quality video if they wanted, while the other two carriers charged more for the higher quality. But shortly after Verizon’s announcement, T-Mobile (TMUS) and Sprint (S) agreed to include HD video streaming at no extra charge and AT&T expanded its unlimited offer to all its customers after previously only allowing its pay TV customers to sign up. All three moves will ultimately put more traffic pressure on the carriers’ networks.

“Verizon’s counter appears to be a re-assertion of network advantage,” writes Moffett. “They believe that they can create a capacity war that they can win.”

That’s consistent with what Verizon chief network officer Nicki Palmer told Fortune last month about the decision to offer an unlimited plan. Palmer said Verizon’s added capacity, particularly via small cells, could handle the surge of traffic from unlimited customers. “It’s something we have down to, it’s not even an art anymore, it is a science,” she said. “We have expectations, we have capacity plans. It’s not something that I’m losing sleep over. It’s certainly something we know how to stay on top of.”

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Wall Street has been somewhat confused in its reaction to the unlimited plans. Verizon (VZ) shares were hit hard after the company reported its fourth-quarter results in January and said it didn’t expect to grow its revenue in 2017. They fell further after the unlimited announcement but have bounced back a bit in recent days. For the year so far, Verizon’s stock price is off 6% versus the 6% gain in the S&P 5000 Index.

But Nathanson is more optimistic, citing early signs that Verizon is gaining market share with the plan. The competition “may struggle to keep pace,” he wrote. “Necessity, as they say, is the mother of invention. Verizon may well have landed on a strategy that will actually work. That’s certainly not what consensus seems to be thinking.”