August 29, 2005 1:57 PM PDT
Verizon gets aggressive on mobile broadband
On Monday, the wireless provider, owned by Verizon Communications and Vodafone, announced that it is lowering prices on its wireless broadband service to $60 from the previous price of $80 a month. It also announced that it has expanded the service--which is based on a technology called EV-DO, or Evolution-Data Optimized--into seven new markets, bringing the total number of markets served to 60.
The new price is only available to customers who also subscribe to a Verizon Wireless voice plan, and it requires customers to sign a two-year contract.
The new price cut has surprised some analysts because Verizon Wireless' competitors are just now starting to offer comparable services of their own.
"Verizon is acting like it's a price war when there isn't anyone else really competing against them yet," said Albert Lin, a telecom analyst with American Technology Research who first wrote about the price cut in a research note to investors published last week.
But it won't be long before Verizon's two main competitors, Sprint Nextel and Cingular, become a greater competitive force. Last month Sprint began offering its wireless broadband service. It will be in 14 markets by the end of the quarter and will be in 60 metropolitan areas by the end of 2005, said John Polivka, a spokesman for Sprint Nextel.
Cingular, owned by BellSouth and SBC Communications, plans to offer its ultra-fast wireless service, based on technology called UMTS (Universal Mobile Telecommunications System), in 15 to 20 markets by the end of 2005. By the end of 2006, it will be available in 100 top markets, said Ritch Blasi, a spokesman for the company.
For the last couple of years, Cingular has been offering a slower Internet access service called EDGE, which provides download speeds between only 100kbps to 135kbps. It also offers a service in six markets that provides download speeds between 220kbps and 320kbps. It will go live with a 400-to-700kbps service later this year, said Blasi.
Sprint Nextel and Cingular are both offering unlimited wireless broadband service for about $80 per month. So far neither company has indicated that it plans to reduce prices on its service.
"We intend to remain competitive," said Polivka of Sprint.
Cingular may be behind its competitors in terms of building out its footprint, but it could turn out to be Verizon's biggest threat. Unlike Sprint Nextel and Verizon, which both use the EV-DO technology, Cingular has built its wireless data network around a technology called GSM or groupe speciale mobile, a wireless standard used throughout Europe and Asia.
EV-DO vs. GSM
As a result, Cingular will get the latest and greatest handset equipment before Verizon or Sprint Nextel. For example, Motorola's new Moto Q handset, which will compete head to head with RIM's BlackBerry device, will initially be available only on GSM networks and, therefore, available to Cingular. Cingular can also market its service and products to multinational corporate customers, since its phones, handheld devices and network cards can be used in countries throughout the world.
"The GSM carriers definitely have an advantage," Lin said. "And that could be part of what is motivating Verizon to try and sign up as many customers as it can. It could be part of a pre-emptive strike to lock in business now. If they wait too long they lose the chance for an easier sale."
Some analysts wonder if Verizon may be cutting prices because it's having trouble selling the $80 service.
"The $80 price tag could be too high," said Daniel Zito, an analyst with Legg Mason.
But Verizon insists that isn't the case.
"The service is selling just fine priced at $80 per month," said Nancy Stark, a spokeswoman for Verizon Wireless. "We felt the timing was right to offer a special offer to existing and new customers because our footprint has reached a significant size."
While Verizon may not be facing competition and pricing pressure from other cellular carriers right now, it's facing competition from other technologies, namely Wi-Fi. Many cities, including San Francisco, New York and Philadelphia, are planning to build Wi-Fi networks that will allow users to wirelessly access the Internet throughout each city. The technology has already proven to be extremely popular in airports and cafes, which offer it free or for a nominal cost.
The advantage that a service such as Verizon's brings to the table is that it reaches much longer distances than Wi-Fi. While Wi-Fi has a range of about 350 feet indoors, consumers with EV-DO can get service anywhere a cell phone signal is available.
But there are other emerging technologies that will also likely compete with cellular-based broadband services. For example, some phone companies are dabbling with a new technology called Wi-Max, which provides speeds comparable to those offered by Wi-Fi but reaches longer distances. BellSouth is currently testing a version of the technology to provide fixed Internet access to college students in Athens, Ga. In the next few years, the technology, which is heavily touted by semiconductor giant Intel, is expected to also be used in mobile applications.
Regardless of the technology that's used, Verizon needs to be at the forefront of wireless broadband, said Lin.
"Verizon's future is tied to wireless broadband," he said. "About 100 percent of its growth comes from wireless revenue and the fastest growing pieces of that business are non-voice services. It's definitely an important market for them."
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