Streamed media to force higher Verizon rate tiers

[Bob Russell]

In a surprising turn of events, Verizon says they are being forced to raise rates for EV-DO broadband access. Yes, of course, I say that with tongue firmly planted in cheek. It's not a bit surprising to hear them looking for a way to raise revenue levels. The interesting thing here is the particular argument being used.

According to PC World, "Verizon currently charges $60 per month for the service with a two-year contract and a qualifying voice plan. The service provides unlimited home airtime usage "when browsing the Internet, accessing the Intranet, or reading e-mails" according to Verizon's Web site." But they are careful to make it off-limits for use even with handheld products like Palm's Avvenu for remote file access, or Pocket Tunes for streaming audio, or video streaming with Slingbox or Orb.

The idea that they want the public to accept is that these users are extreme and should have to pay more above and beyond the unlimited access plans as heavy users of the network. On the surface of it, one might think it's completely fair, logical and reasonable. What else can they do? They have to protect the network, after all.

So let's take a closer look, and see how well this stands up. First of all, one has to look at the history of Verizon and other carriers. When you look at their pricing schemes, it is clear that they are primarily focused on maximinzing revenue from their customers, and that they are not too worried about matching costs directly to usage.

In fact they can't really match costs to revenues very well for a single new customer because in their industry they have huge outlays on the network infrastructure, while the marginal costs of adding a single customer are very small. Carriers have also managed to keep pricing plans and fees confusing, while locking customers into long term plans so a customer can't leave easily if pricing turns out to be undesireable in areas such as broadband. How many average smartphone buyers know exactly what data access will cost them when they buy the smartphone and sign up for the service? Not many!

As a result of this unusual pricing environment cultivated by the carriers, they generally have lost touch with typical pricing models, and it almost seems that they have lost touch with principles of reasonableness. If you are selling toasters or VCRs, you generally have to price at a small margin over the cost of producing, plus other costs for things like distributing and supporting that one unit. And consumers are able to price shop every time they buy.

Not so with data access plans, and the carriers have worked hard to keep it that way so they can squeeze out some extra dollars from the consumer. In fact, for that very reason, they were the strongest voice against some of the most important consumer protection laws. Laws that are responsible for giving you the choice to use your own phone equipment in your home, and the option to keep your phone number if you switch phone carriers.

If you remember, it wasn't all that long ago that you had to rent your wired phones from the phone company at a pretty steep price. The argument was the same thing we hear now. They have to protect the network. It seems to be the battle cry every time they want to charge you for something you could do themselves. It's all about control.

Now, there may be some basic level of truth to network protection concerns, but obviously they use that argument far past the facts, because it's the key to gaining higher pricing for services. What were the charges we used to pay for our required home phone rentals, other than price gouging supported by the policy of not letting you use your own phone because they have to "protect the network" from damage. How many of us have our own phone equipment now? And does the phone network still work? Of course it does. And in the other example, if they control your phone number, then they can raise prices and have less defectors because customers are locked in.

Now, as Yogi Bera said, it seems to be "Deja Vu all over again!" When the carriers control how we use broadband services, then they can charge more. For example, if Verizon was to allow streaming media on a regular data plan, then how can they expect to charge for a streaming video service in the future? The answer is that they can't! The only way they can expect to keep getting (other than by providing true value in desireable content) is to prevent you from doing it yourself with products like Orb or Slingbox, and many more to come soon.

But, if streaming media really does use more network bandwidth, is there really any choice but to single out those customers and make them pay? Sure there is. First of all, these are the same arguments that were used before with cable internet. But have you noticed that cable tv services are now sending their video over the same line as cable internet? And cable internet providers are even advertising and encouraging broadband for streaming media.

Comcast offers things like a home page portal that shows a library of streaming video news clips. They provide free live NHL hockey events. And they even provide free internet radio service with Rhapsody. Not only do they provide these things, but they advertise and encourage them. They are focused on winning the customer with added value, not throttling them. Granted, cable internet providers are in the same boat, with some customer lock-in, and huge infrastructure costs that breaks the natural ties between pricing and marginal cost. But the point is that they can do it. Admittedly, they probably have to address certain users that do heavy enough video file sharing or other extreme activities. Until the bandwidth can be easily adjusted, it will always be the case that there may be a handful of users that need to be managed to protect the network.

But to imply that it has to be a general pricing scheme is, in my opinion, not based on network protection. It's based on revenue enhancement motives. I'm not saying that they don't have the right to try to do that. But I am saying that we should not be naive about what's happening, and they should pay a huge public relations price and even eventually maybe face consumer protection laws as they try to shape the market and pricing structures heavily in their favor. The closer we get to a competitive market, the better the chance that another carrier will force them to be more responsive to customer needs, even including reasonably priced data access for streaming content.

Is this a pipe dream to put such faith in competitive pressures in a market with limited competition? Maybe. But look at Sprint. They seem to be planning for the future in a quite different manner than Verizon. Verizon wants to control all content delivery over the network other than email and web browsing. Sprint is looking forward with a longer term view into the future and wants to serve customers. They are encouraging customers to use the network for streaming content, and have not (so far) restricted it. Instead, they are focusing on building the network to handle it. And they will still have their own content services to build revenue, but they are going to offer content that earns revenue because the customer wants it, and because the services are convenient and work well. Not because the network can't be used for streaming content by the customer.

There is a new broadband Palm 700p rumored to be coming out in May 2006. When it is released, we will also learn something about Sprint's market approach by looking at how they price the data service, and how they position it relative to streaming media. Among US carriers so far, they have distinguished themselves in this area, and many Treo 650 customers have gone to Sprint for that very reason. I'm eagerly looking to see how the data services are handled by Sprint to get an idea of their future direction. Let's hope they choose to have a long term view of customer satisfaction and meeting needs, rather than a strong handed control that limits everything the customer wants to Sprint-controlled services.

Via arstechnica.com

[wdhvnguy]

I agree with everything you said Bob.

I was caught in the Verizon "TOS" (terms of service) trap myself untill recently.

I got my first aircard from them in 2002 and used it for streaming audio, video and just about everything else when traveling. Back then it was 1xrtt network (not much faster than dialup). But at that time they measured their usage in Min not kilobytes. Therefore since it was "unlimited" min, you could surf all day long. I was never challanged on this at all. I could use the aircard in my laptop and also my PDA (at the time was a compaq Ipaq).

Then when my contract expired, I received a call from a sales rep from Verizon asking me to switch to Broadband (evdo) service. I had already looked into this and explained to him that their new aircards would not work with my Compaq Ipaq, and their PDA's would not work with my laptop. Therefore I'd be giving up the flexibility my aircard offered.

However, I did go back into the nearest Verizon store and was shown an Audiovox PPC(something I don't remember the exact model num). I was told that it could be teathered to my laptop and used to connect to the internet at broadband speeds. Longstory short, I purchased the device and was put on the PDA Smartphone "Unlimited" plan. It cost 49.99 a month. I was never told I couldn't use it for streaming audio or video, in fact the first thing I did to "test" the device was launch a streaming radio station I love in London.

Anyway, When I got to work the next day I showed the device to my supervisor. His wife works for Verizon (hight up in the customer service food chain). Anyway, he informed me that he thought my using it for streaming audio might violate their TOS. I checked this out (no easy task I assure you, it's burried deep in their website) and he was correct. To say I was angry would be an understatement.

Anyway, found many forums about this problem and most seemed to think as long as you keep the usage under about 10 gig a month you'll not trip their "excessive use" detector. So I went with that for a while.

Anyway, without going into detail, I had another problem with Verizon and decided to use my contact to see if I could get out of my contract. I was put in touch with the "executive" customer service area and spoke to someone that let me out of my contract with Verizon and refunded me all the money I had spent on the device.

By this time I learned that Sprint didn't have such restrictions on their service. So I went with them. True enough, when I get my bill each month, it shows no "measurement" of bandwith for the month. I pay a flat rate and that's it.

I think if Verizon doesn't change their tune soon, they may face some serious reprecussion. People will eventually get fed up with the deceptive advertising and switch to someone else.