Uncommon Wisdom

Sep 23 2010   5:10PM GMT

Verizon’s 4G LTE tiered pricing: The only answer for ROI?

Tom Nolle Tom Nolle Profile: Tom Nolle

 Verizon’s announcement that it would be delivering LTE services with tiered pricing shortly is an important if not-unexpected indicator of a harsh reality in networking. We have a vibrant industry filled with venture capital money tirelessly working to exploit Internet bandwidth and connectivity. At the same time, we largely ignore the question of how we’ll sustain the infrastructure that provides us with all of that good stuff.

The problem isn’t as much one of technology (though innovation could certainly help) as that of a sustainable business model. When all-you-can-eat pricing was introduced for the Internet, it worked because nobody was eating much. There was little content, no video, and no social networking explosion to fuel usage, and so even giving a customer a faster connection at little incremental cost wasn’t likely to create much of a financial burden. That’s no longer true.

Network operators like Verizon have to earn a decent return on investment, and operators already earn far less than the public over-the-top players like Google. Future investment is likely to come at an even lower ROI unless pricing plans change. That’s part of the reason why Verizon is focusing on 4G LTE services, but another reason is that they can.

4G isn’t rolled out to most users, and so the decision to offer it with pricing tiers for data usage doesn’t create the kind of push-back that a similar move in 3G data would create. That doesn’t mean there won’t be such a move; we think that we’re facing usage pricing tiers even in wireline broadband.

Things like net neutrality have also contributed to the problem. The FCC continues to debate whether IP-non-Internet services are violating a still-undefined net neutrality position. If they are, then there’s no escape from the Internet pricing model for incremental services like IPTV. That means that the bandwidth itself must be made to pay a fair return, and that will limit the growth of new applications by making their increased usage a pay-to-play proposition.

We could have avoided all of this with rational ecosystemic thinking, but I think it’s now too late for that. Raising the dreaded specter of usage-based pricing is the big risk, and one that’s already being taken. Having taken the step, operators have little to gain by then working to remove the pricing tiers by supplementing their revenues elsewhere, even if a plan to do so is developed.

We see operators worldwide focusing on content delivery, and in particular on content monetization. Much of these activities are looking not at the network but at hosted assets related perhaps to identity, location, metadata, and other customer and content asset attributes. They’ll still need the network to deliver, but the best hope that that delivery network will continue to be innovative and feature-rich may now be pricing tiers, and that’s a sad outcome for us all.

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