Verizon iPhone unlimited data won't last forever

January 10, 2011: 2:39 PM ET

It's a great ploy to win over new customers, but unlimited data plans will prove problematic for Verizon in the long term.

By this time tomorrow, millions of Americans who have been clamoring for an iPhone without AT&T service will finally have the option: Verizon Wireless is expected to announce the availability of the iPhone running on its network. Not only that, but if reports prove accurate, Verizon will allow iPhone users to sign up for its unlimited data plan.

That last part is a surprising move for Verizon (VZ). Analysts predict the mobile carrier will sell as many as 12 million units this year. AT&T (T), despite its efforts to improve network quality by expanding its infrastructure in areas like New York City and San Francisco, still ranks lowest among mobile carriers in Consumer Reports' survey for customer satisfaction.

In the short term, offering unlimited data seems like a smart move. AT&T killed its own plan last June in favor of usage-based data options. Its official explanation was that 98% of customers use less than 2GB of data monthly, but much more likely, it was an effort to increase adoption and lower consumption. To curry favor with current users, AT&T also lowed the prices for both plans and allowed current unlimited data subscribers to keep their plans for as long as their contracts last.

Despite those efforts, a recent survey conducted by Bernstein Research revealed nearly 50% of respondents were unhappy with both AT&T's move and usage-based data plans in general. An even larger percentage, nearly 60%, believe they would be worse off in usage-based pricing plans, and a surprising 74% admitted they would actually switch carriers to avoid mandated usage-based plans so long as they could keep the kind of phone they use.

If Verizon offers unlimited data, as sources tell the Wall Street Journal it will, its iPhone offering will be even sweeter for that 74% who are inclined to switch over. As iPhone owners make up 18% of AT&T's 92.8 million customers, or 16.7 million, it's possible -- though probably not realistic -- that Verizon could steal as many as 12.3 million users away from its competitor.

But Verizon's gamble with unlimited data could prove problematic beyond 2011. Verizon will undoubtedly gain users, and apply pressure on AT&T for its own pro-rata plans, but it will also perpetuate the long-held belief held by many mobile users that data can and should be consumed like it's an all-you-can-eat buffet.

"Offering unlimited data does little to acclimate users to an environment where they have to pay for what they consume," says Dan Hays, a partner and senior member of global tech management firm PRTM. "It's a persistent problem particularly in the U.S. because with wire broadband, we don't pay for usage, and we've become used to that."

Unlimited data would be fine if mobile carriers, particularly AT&T, could keep up with data usage, which has for the most part outpaced capacity expansion to date. Though Verizon has said it has the capacity right now to handle the influx of iPhone users -- and given its sterling reputation, we have every reason to believe it -- Hays believes the company's days of unlimited data are numbered. This is not just because Verizon's own CTO has said as much, but also because eventually network capacity will become an issue -- if not now, then surely when its 4G Long Term Evolution (LTE) network goes mainstream. Improved data speeds will encourage users to consume even more data, and inevitably, the carrier will need to take a long hard look at its options and whether unlimited data usage can and should be sustained.

So while newly-reformed AT&T iPhone users and iPhone newbies have every right to enjoy the benefits and features of their new purchases, be forewarned: unlimited data may not be one of them -- at least, not in the years to come.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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