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A public policy blog from AEI
Two weeks ago, Verizon announced that its popular $80 unlimited mobile data plan would be replaced by three separate plans: Go Unlimited ($75 for the first line), Beyond Unlimited ($85), and Business Unlimited. The catch? Verizon reserves the right to prioritize other traffic ahead of Go Unlimited traffic when the network is congested (after 22GB of high-priority service has been consumed for Beyond Unlimited). And it will typically stream video on smartphones at 480p on Go Unlimited and 720p on Beyond Unlimited, thereby reducing the potential for network congestion. Higher resolutions will be available on tablets, but these will be capped at 1080p. This will be achieved by setting video streaming speeds at 10mbps — which effectively provides high-definition video at up to 1080p resolution.
Predictably, the move has outraged some smartphone users
At first glance, one might have expected that mentioning “throttling” and “mobile data” in the same breath would rattle the cages of net neutrality advocates. However, Verizon’s offer does not breach the anti-throttling technicalities of the Federal Communications Commission’s Open Internet provisions because all data of the same type is treated equally for the customers concerned, regardless of its origin. This is not a case of Verizon selectively throttling Netflix data but letting YouTube go through unmolested.
For sure, there has been some grumbling about throttling speeds, but by far the loudest noise has come from users disgruntled at the capping of streamed video resolution at 1080p. As one commentator put it, “The dream of 4K and Full HD video on Verizon smartphones will be dead.” Verizon has countered that as users typically cannot tell the difference between 720p and 4K on a smartphone and “more than 96 percent of customers have not used 4K video,” no harm has been done. However, it does mean that consumers will no longer be able to use their mobile devices as hot spots to stream 4K video on a laptop.
One-size-fits-all and embedded cross-subsidies are passé
However, what the critics left unsaid is that by offering a range of plans, Verizon is offering real choice to its consumers. Those who do not care for fast speeds or 4K video resolution can now actually get the service they want and pay less for it. Those unwilling to pay $80 for an unlimited plan but who can afford $75 can now make the move to an unlimited data plan. How can that be bad for consumers? Those who do value the characteristics are not prevented from buying them — it is just that they will have to pay a little more for a plan offering the bells and whistles.
Arguably, the consumers complaining about the streaming terms are simply protesting the removal of the cross-subsidy they have been enjoying at the expense of other consumers who place less value on their data plans and prefer access to cheaper plans. This is a common phenomenon when one-size-fits-all plans are subdivided (or customized) to meet defined customer groups’ demand characteristics. Typically, this occurs when the subsidized customers’ usage is inefficiently high and poses cost pressures on the network. If prices must rise, rather than increasing the price to all consumers, it is more efficient to recalibrate tariffs so that those consuming more resources pay a larger share of the costs of providing them.
Of course, one of the risks of tariff recalibration is that more customers than anticipated actually do not value the added features highly enough to pay the higher prices. It will be interesting to see how consumers respond to these new choices.
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