How will consumers respond to Verizon's new usage-based data plans?

Verizon Wireless (NYSE:VZ) confirmed it will move to usage-based pricing for smartphone data starting Thursday. The big question, for Verizon and the industry, is what happens next. In general, analysts told FierceWireless that they don't expect customers to rebel against Verizon's changes, but that the ultimate success of the action depends on how the company markets the new plans.

Starting Thursday Verizon will offer three options: $30 for 2 GB per month, $50 for 5 GB or $80 for 10 GB. There will be an overage charge of $10 per GB of data. Verizon will also charge $10 for 75 MB per month for feature phone users. Existing customers who upgrade on or after July 7 will be able to upgrade to another smartphone and keep their unlimited smartphone data plan.

Analysts said they don't expect the new plans to cause many Verizon customers to churn, mainly because the 2 GB entry-level tier for smartphone data is the same as Verizon's current $30 unlimited plan. According to recent data from the Nielsen Company, on average, 96 percent of smartphone users do not use more than 2 GB per month. "The bulk of people, if they want to get a new phone and move over, will be paying $30 for 2 GB and be happy," said Susan Welsh de Grimaldo, an analyst at Strategy Analytics.

Current Analysis analyst Deepa Karthikeyan agreed, and said that since the new plans only apply to new users, there likely will not be a huge spillover of customers to Sprint Nextel (NYSE:S), which remains the only Tier 1 carrier with unlimited smartphone data that does not throttle subscribers (as T-Mobile USA does). However, she said that the new plans are priced "very steep" compared with those of AT&T Mobility (NYSE:T) and T-Mobile, and "are likely to get users thinking twice about opting for Verizon Wireless' service."

Karthikeyan said in the long run the plans will help Verizon boost average revenues per user. "The reality is that unlimited data plans cannot go on forever and for users who will only consider the top two carriers, Verizon and AT&T, Verizon's portfolio is a better bet as it offers high-end data access plans," she said.

Verizon's high pricing levels may be by design, analysts said. Roger Entner, an analyst at Recon Analytics (and a FierceWireless contributor), said that when AT&T switched to usage-based pricing last year, it was designed to bring data to new market segments and bring on more smartphone customers (AT&T charges $15 per month for 200 MB and $25 per month for 2 GB). AT&T's new plans have been fairly successful for AT&T; the company said in March it had 10 million customers on usage-based plans, though it has not given an update since then. 

Entner said Verizon is going in the opposite direction, and saying it has a premium product, especially with LTE. "It is entirely consistent with their historic pricing philosophy," he said. "It starts with not being active in prepaid and always charging a premium compared to at least Sprint and T-Mobile."

Interestingly, Verizon is charging the same fees for EV-DO smartphone data and LTE smartphone data, despite the fact the carrier has spent billions of dollars building its LTE network. However, the carrier could be hoping the faster speeds provided by LTE will spur users to upgrade to higher data tiers (and thus spend more money with the carrier).

According to data from Nielsen, average smartphone data usage grew by 89 percent from 230 MB per month in the first quarter of 2010 to 435 MB per month in the first quarter of 2011. De Grimaldo said Verizon's pricing plans reflect that trend, and is an attempt to capture more value from data. "As people start to use more data, and as the average starts to creep up, they need to keep the revenues coming off of that data," she said.

The big question for Verizon will be how it communicates the changes to consumers. Since the vast majority of smartphone users do not go over 2 GB of data per month, according to Nielsen, most new Verizon subscribers likely won't feel a difference. "AT&T has done a lot of the leg work here for Verizon," Entner said, noting that Verizon must communicate its changes effectively.

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