Verizon in a position to dictate data limits

The fact that Verizon Wireless' new "unlimited" data plan now has a hard stop at 5GB raised the ire of several readers last week. In short, Verizon Wireless plans to either reduce throughput for those who go over 5GB or charge extra.

Of course, this isn't anything new from Verizon. For years it had been sending termination letters to customers who use more than 5GB, except now it is sending warning letters, reducing throughput or charging extra. The operator has always prohibited the use of data-hungry services such as streaming video and audio, peer-to-peer file sharing and VoIP calling. And it assumes that if you're using more than 5GB per month, you're using these services.

This time, Verizon has to be clear that unlimited really isn't unlimited. In October, Attorney General Andrew Cuomo announced that Verizon had agreed to halt the deceptive marketing of its Internet usage plans and reimburse $1 million to customers for wrongful account termination nationwide. The attorney general's investigation found that Verizon prominently marketed these plans as "'unlimited," without disclosing what uses were prohibited and abruptly cutting off users.

Clearly, Verizon is in a conundrum when it comes to mobile Internet via EV-DO. Voice is still the revenue generator of the business, and EV-DO Rev. A requires the operator to dedicate an entire 1.25 MHz channel solely to data. That means voice capacity is being sacrificed for high-speed data services. As such, it's difficult to offer a truly unlimited high-speed data plan. That's why Verizon has never positioned EV-DO as a replacement for DSL. The service is priced at a premium to DSL because it's mobile. But naturally, people want to be able to use all of the services on EV-DO they use at home.

Moreover, this restriction policy could fly in the face of Verizon's new open-access policy whereby Verizon by the end of the year will allow subscribers to connect any device and to use any application as long as it meets some "minimal technical requirements." Skype, for instance, may market its services for free but end users could be socked with a huge data bill at the end of the month.

It's only until 4G comes along that Verizon will have the capability to offer a true Internet experience--one that end users are accustomed to in the landline world. All traffic running on the LTE network will be IP-based, giving Verizon the capacity it needs to offer data services.

In the interim, Verizon is in a bit of a sweet spot where it can successfully dictate these kinds of restrictions. Sprint may have no restrictions on its EV-DO service (it's in a better spectrum position than Verizon), but the company's market perception is quite poor at this point. AT&T's WCDMA/HSDPA coverage pales is comparison to both Verizon's and Sprint's EV-DO coverage. And Verizon has the best perceived voice coverage in the industry. Do users really want to give that up to go to a competitor for better data policies? Only when competitors have a stronger story to tell will Verizon be forced to change its policies. --Lynnette