Confirmed: Verizon to throttle speeds so prepaid users can stay connected

Verizon said it will launch a service that enables prepaid smartphone customers to stay connected at lower speeds after they've consumed their LTE data allotments.

The offering, dubbed Always-On Data, will debut Sunday, July 17, and will throttle users to 128kb/second after they've surpassed their data caps for the rest of the billing cycle. The feature is similar to the Safety Mode feature Verizon introduced last week when it rolled out new pricing plans, but unlike Safety Mode – which costs an additional $5 a month for users with cheaper service plans – Always-On Data is free for all prepaid users.

The new feature was initially reported earlier this week by Droid Life; a Verizon representative confirmed it to FierceWireless Friday.

The nation's largest carrier drew flak from some critics last week when it raised both the price of its monthly plans and the amounts of data those plans offer. Verizon representatives maintain that the move wasn't truly a price hike, though, because the price per gigabyte of data is actually lower in the new plans.

Verizon offers three prepaid plans for smartphone users that include unlimited talk and text in the U.S., and unlimited text to Canada and Mexico. A Wi-Fi-only data plan is $30 a month; 3 GB of LTE data and mobile hotspot capability is $45 a month, and 6 GB of LTE data with mobile hotspot and unlimited calling to Mexico and Canada is $60 a month.

The new feature is the latest indication that Verizon is beginning to target a prepaid market in which it has ceded ground recently to T-Mobile's MetroPCS and AT&T's Cricket Wireless. In May, Verizon doubled the amount of data on some of its prepaid plans.

That move was particularly notable in light of a claim made in April by CFO Fran Shammo that the carrier viewed TracFone as "our prepaid product" in an effort to avoid cannibalizing its postpaid user base. TracFone is an MVNO that sells services through every major U.S. carrier, of course, and it lost 58,000 net customers last year as users fled its voice-only plans.

Verizon lost 177,000 net retail prepaid users in the first quarter, which actually marked a slight improvement compared to the 188,000 it lost during the same period last year. But competition in the space is becoming fierce as the value gap between prepaid and postpaid users continues to close. And it appears Verizon is beginning to pay attention.

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