Verizon's Decision to 'Manage' Unlimited Data Subscribers Could Benefit Sprint

NEW YORK (TheStreet) -- There was a time when Verizon  (VZ), AT&T (T), Sprint (S) and T-Mobile (TMUS) charged customers by the number of minutes talked and the number of text messages sent. Those days are gone. Consumer behavior has rapidly shifted to data consumption over voice and text. In fact, data accounted for more than 50% of revenue for U.S. carriers in the first quarter of this year. Consumers are communicating via Twitter (TWTR), Facebook (FB), Snapchat, Pinterest, Viber and the list goes on. Talking and texting has become passe and U.S. carriers have adjusted their business models to the changing environment.

Companies like Sprint have embraced data consumption by offering unlimited data plans, while Verizon has discontinued unlimited data plans in favor of shared plans across multiple devices. However, if you were lucky enough to have an unlimited data plan on Verizon prior to 2012, you were grandfathered -- allowed to keep your plan and consume data unencumbered. However, that is about to change.

Verizon recently announced that, through its Inter-User Best Effort (IUBE) network optimization program, it would begin to manage the data of the top 5% of unlimited data plan subscribers.

What this means is, if you are in an area with a lot of network traffic, and you are on an unlimited plan, Verizon will reduce your data speed in favor of those who are paying by the gigabyte.

Verizon describes the top 5% as those who use 4.7GB of data per month. To put this into perspective, Netfilx  (NFLX) uses approximately 1GB of data per hour for a standard definition movie, 3GB per hour for an HD movie, 4.7GB per hour for a 3-D movie, and 7GB per hour for an ultra HD movie. In any case, if you stream more than one movie per month, you are in Verizon's top 5% and your data will be managed if you are on an unlimited plan.

There have been rumors for years that U.S. carriers were throttling the data of customers who engaged in activities that put a lot of stress on the networks like continuous streaming of video, music, and online gaming. But Verizon says that what it is doing is not throttling:

The difference between our Network Optimization practices and throttling is network intelligence. With throttling, your wireless data speed is reduced for your entire cycle, 100% of the time, no matter where you are.

Once you go over 4.7GB of monthly data usage on Verizon's network, you will be subject to Network Optimization for that billing cycle and the next billing cycle but only when you are on a tower with a lot of network activity. Which begs the question, how will consumers know when they are on a busy cell tower? Verizon says:

There are many variables that can contribute to a cell site experiencing high demand including, but not limited to, the number of active users and the type of applications being used on that site…. these variables combined with other environmental factors determine whether or not a particular cell site experiences high demand at any particular time.  


So the bottom line is that consumers will not know if they are on a busy cell site but it's safe to presume that if you are in New York, Los Angeles or any other major American city, you are on a busy cell tower. From this change in policy, it appears clear that Verizon would prefer its unlimited data customers switch to a plan that pays by the GB.

Consumer Intelligence Research Partners recently did a study that concluded that 22% of Verizon customers were on unlimited data plans. While, according to the study, this is the lowest percentage in the industry, it is still good chunk of market share to be had by competitors willing to offer a truly unlimited plan.

Which brings us to Sprint. At this time last year, Softbank closed its purchase of 78% of Sprint. This deal was followed by the new Sprint purchasing 100% of Clearwire Corporation, giving the new Sprint a significant amount of wireless airwaves licenses and presumably the bandwidth to handle a lot of data. Immediately following the closure of these deals, Sprint announced that it would offer unlimited data for life. At the time, this was clearly a shot across the bow of Verizon and AT&T who were not offering customers unlimited data plans.

Fast forward to today and "Unlimited for Life" on Sprint might look quite attractive to the 22% of Verizon unlimited data subscribers facing the potential wrath of network optimization. Investors should pay attention to Sprint when it reports earnings this fall and look for any uptick in unlimited data subscriptions. It could be the start of a new trend.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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