Verizon Communications Inc. (VZ) announced that will withdraw its unlimited data plan for new smartphones. Instead, the company plans to launch usage-based smartphone plans for new customers.
Verizon currently offers an unlimited data plan of $30 per month. The new data plan will be based on the usage of gigabytes (varying from 2 to 10 gigabytes) per month.
Customers will have to choose from limited data plan options of $30 a month for 2 gigabytes, $50 a month for 5 gigabytes and $80 a month for 10 gigabytes. Further, $10 will be charged per gigabytes if customers exceeded their usage plan.
The new data plan will be rolled out in an effort to provide better data usage management for customers. According to various research groups, the smartphones market is expected to grow by leaps and bounds in 2011. It is estimated that the smartphone market will increase 55% globally in 2011. In the U.S., approximately 77 million people are using smartphones and users’ average data usage has touched approximately 89% to 435 megabytes.
Given the booming smartphone market, most of the wireless phone carriers are contending to tap opportunities by offering the best possible smartphone with a value plus data plan. To date, wireless giants like Verizon, AT&T (T). T-Mobile USA and Sprint Nextel (S) are the pioneers of unlimited data plans.
Out of these companies, Sprint had the cheapest smartphone rate of $70 per month with 450 voice minutes, unlimited text messages in addition to unlimited data. However, the increasing cost burden due to heavy usage led the company to increase rates by $10 earlier this year. Sprint remains the only company to pursue an unlimited data plan but plans to cease it soon, similar to its peers.
Following the trend, T-Mobile offers a data plan of $79.99 for unlimited voice, messaging and data, but only up to 2 GB per month. AT&T has set caps on monthly data usage similar to Verizon. It now offers $25 per month for 2 gigabytes of data and $45 for 4 gigabytes.
We believe the new plan will provide Verizon optimum cost control, which has significantly increased due to the high volume of data usage on unlimited plans. Additionally, it will accelerate data revenues as people are increasingly becoming dependent on smartphones owing to their benefits over any other ordinary cell phone and thereby, phenomenally increase data usage.
Currently, we maintain a long-term Neutral recommendation on Verizon supported by a Zacks #3 Rank (Hold).
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