Is Verizon 'shaking down' customers with family plan?

One CNET reader thinks that Verizon's new family share plan is nothing more than a corporate shakedown. CNET's Marguerite Reardon offers her opinion.

Verizon Wireless' new family share plan has gotten lots of knickers in knots. But is the new plan really as bad as some people fear it is for consumers?

Last week, Verizon's new family share plans went into effect for the carrier's new customers. The plans give subscribers unlimited voice and text messaging and allow people to share buckets of data between different people on the same share plan and among multiple devices on the same plan. But the plans have also caused a lot of confusion -- and outraged many existing Verizon customers.

In this edition of Ask Maggie, I offer my opinion about whether Verizon's new plans are really good for consumers or not. I also explain to another reader why Virgin Mobile and Boost Mobile have different coverage maps than Sprint Nextel, which owns and operates these prepaid services.

Is Verizon's new family share plan really unfair?

Hi Maggie,
I'm debating whether or not I want to upgrade from my iPhone 4 to ANY new smartphone.

Apparently, the U.S. carriers have taken a page from the airlines' playbook regarding pricing and fees. Now that voice and text usage has declined, Verizon has introduced its data sharing plan and pushed the price of a gigabyte of data through the roof. Adding new devices to share that data is a high add-on fee.

Just keeping the legacy plans we previously complained about, now seems attractive. But customers must pay full retail price for the phone and STILL PAY the same rate they paid when a subsidy was included. AT&T is expected to follow with similar pricing plans.

What is your take on this shake-down by the carriers?

Thanks,
Frustrated

Dear Frustrated,
I hear you. But before I offer my opinion on this matter, let me just clear up a couple of things. First, you only have to pay full price for a new phone while upgrading your Verizon device if you want to keep an unlimited data plan.

If you never had an unlimited data plan or you're willing to switch to one of Verizon's other plans, then you can still get a new phone for a reduced price. But you are correct that regardless of whether you bring your own device to your Verizon plan or you take the subsidy, the cost of your monthly service is still the same. In many ways, you are paying for a subsidy regardless of whether you actually take the lower-cost device.

This is very different from carriers like T-Mobile USA, which offers a plan in which you pay for your phone over a 20-month period. And once it's paid off, your monthly bill is reduced accordingly.

The second thing I want to clear up is that Verizon is not forcing existing customers into new plans. If you already subscribe to Verizon, you don't have to switch to the family share plans if you don't want to, even when you renew your wireless contract. If you're an existing Verizon customer, you can choose to keep the plan you already have. (The only exception is if you have an an unlimited data plan as I explained above). Even if you have an unlimited plan and you want to switch to a tiered plan, as an existing Verizon customer, you have the option of either getting one of the old plans or you can subscribe to one of the new family share plans.

However, these options are not available for people who are new Verizon customers. If you are signing up for Verizon service for the first time, you will only be given the option to choose from one of the family share plans.

Now onto your question: What do I think about the "carrier shake-down?" First, I agree that airlines are as frustrating in terms of their pricing as wireless phone companies. But I'm not sure the comparison is really appropriate here. What bugs me the most about airlines is the fact that they nickel and dime their customers. They used to include baggage checks and food in the cost of a plane ticket. And now they charge for those things.

The opposite is the case here. Instead of allowing customers to pick a la carte the services they want to include, Verizon is forcing all customers to buy unlimited texting and voice services. You rightly point out that many people are actually using these services less as they find alternatives via apps on their smartphones.

As you mentioned in your comments, AT&T is likely to follow Verizon on this new pricing plan. Luckily for those who hate the idea of these family share plans, not every carrier will adopt this same model. T-Mobile has already come out against this pricing plan.

In fact, the carrier has written a blog post talking about why it opposes the idea of family share plans. I recently spoke with Harry Thomas, director of segment marketing at T-Mobile and the author of the T-Mobile blog post about this issue. And he told me that T-Mobile thinks these plans are bad for consumers because they cost more, are inflexible, and penalize customers who exceed their monthly data caps. He thinks these share plans are likely to result in more people exceeding their monthly data usage and being forced to pay more.

"What wireless customers really want is worry-free plans," he said. "They don't want to have to do a lot of calculations to figure out if someone is going to go over their monthly data limit due to excessive usage."

And he added that customers don't want to be forced into paying for unlimited voice and data if they don't want or need those services.

"Not everyone needs unlimited voice and text messaging," he said. "People also want the option to add phones to a plan without paying such a high cost."

I agree with some of Thomas' points. Flexibility is important for wireless consumers. Not every customer's situation is identical. And one plan that works for one person or family may not work for another. At the same time, offering customers too many choices can be confusing. And most people don't like that either. Of course, if these plans and other issues associated with cell phones were truly easy to understand, I might be out of a job.

So, will you be paying more, or less?
What's funny is that Verizon claims that its new plan is meant to offer customers more flexibility, and it's also meant to be easier to understand. But given all the exceptions to this plan, i.e. whether or not you can keep an unlimited data plan and the fact that existing customers can still choose from older offerings, it's not really that easy to understand. And it's not actually all that flexible either, since as you point out, people are forced into bundles that include unlimited services that they may not want or need to be unlimited.

That said, I think when you do the math, most Verizon subscribers will actually either pay the same amount they were paying before these plans went into effect, or they may even pay slightly less, if they are not heavy data users. (Light data users may be able to subscribe to lower amounts of data to keep costs down.) You must keep in mind that Verizon charges a premium for its services, because they can. You can complain about Verizon's new pricing scheme all you want, but the fact remains that it's a pretty solid network in a lot of areas of the country. And for many wireless users, coverage and network quality trump higher prices and inflexible pricing options.

T-Mobile's Thomas also brings up an excellent point about potential data overages and "bill shock." Sharing a data plan with multiple people, especially someone who may watch a lot of movies or stream a lot of audio on his smartphone or tablet, could quickly eat up a month's allotment on a shared data plan. And because it's so hard to know exactly how much data a particular application uses, I also anticipate that these share plans may cause some users to be overly cautious about trying some new applications, which isn't really a great outcome either.

It will be interesting to see if the Federal Communications Commission sees a bump in "bill shock" complaints after this plan has been in place for a while. According to a recent FCC Survey, about 30 million Americans -- or one in six mobile users -- say they have experienced "bill shock," a sudden and unexpected increase in monthly bills that is not caused by a change in service plans. The FCC has launched a Website that discusses this issue and serves as a resource for consumers to help avoid "bill shock."

So my final verdict on these plans is that for the most part, I think they are useful for consumers. But I would like to see more flexibility for people who want to opt out.

I don't think that Verizon is trying to "shake-down" customers. The company is simply trying to shift its revenue model toward one in which people pay more for a service that they use. And because voice and text messaging is cheap to offer, it's just a nice bonus that the company now offers as unlimited. It also gives Verizon an excuse to charge as much as it does to add another phone line to a plan. But keep in mind that the cost of adding an additional phone line with unlimited voice and text when factored into a total share plan is likely not that different from the cost of these services priced individually under the older plans.

This strategy of getting people to pay for what they use began with the elimination of the unlimited data plans. And from an economic standpoint, getting rid of unlimited data and forcing people to pay for data based upon consumption makes sense. Imagine if the electric company offered flat-rate pricing for unlimited usage. Some people would run their air conditioners on full-blast all day in a heat wave just so they could come home to a cool house at the end of the day. But that is a terribly inefficient use of a scarce resource. And it costs the utility much more to keep up with the increased demand for electricity, which could result in blackouts for other customers.

The same is true for wireless carriers. Under an unlimited plan, some customers were blasting their services all the time, which used up a lot of the resources and made it harder for the carrier to service everyone equally.

But the new family share plans are more than just a mechanism to get people to pay for what they use, it's also meant to encourage people to use the data service more for other connected devices. Under the old Verizon plans, if you wanted to turn your smartphone into a hot spot so you could connect a laptop or a Wi-Fi enabled tablet, you had to pay an additional $20 per month to activate the tethering feature on your phone. And if you had a 3G or 4G-enabled tablet, you had to subscribe to a separate data plan to get that cellular access.

Each of these options made it much more cumbersome for someone to use Internet-enabled devices on Verizon's network. The new share plans make it very easy for people to attach their devices to a cellular data plan. This is especially true for people who may only want occasional access to Verizon's 3G and 4G networks on tablets and other Internet-enabled devices. Of course, because Verizon is now charging customers based on usage, when they make this service easier to access on other devices, the company drives up revenue from these same customers.

There's nothing wrong with the fact that Verizon will make more money from each customer on its network, so long as consumers are getting a service that they want and paying only for data they use.

Again my only problem with the current Verizon plan is that new customers have no choice. They either have to buy into the share plans or they have to go somewhere else. And that lack of choice just rubs me the wrong way. Still, I think there are plenty of options from other carriers for consumers who don't want Verizon's share plans. Hopefully, we'll continue to see carriers, such as T-Mobile, remain in the market, offering wireless users more flexible plans at a lower cost. As long as we have that, customers can choose which network and which pricing model works best for them.

Why don't Sprint's prepaid brands offer the same coverage as its post-paid service?

Dear Maggie,
Even though prepaid carriers such as Boost Mobile and Virgin Mobile use Sprint's network, their coverage maps suggest they use only part of the network, thereby providing less coverage across the country. Do you know if Sprint-affiliated prepaid carriers use all or only part of Sprint's CDMA network?

Thanks,
D

Dear D,
Thanks for bringing up this issue. I think it's one that can be a little confusing to people. There is a discrepancy in network coverage between Sprint's postpaid services and its prepaid services, particularly in rural areas.

Sprint's prepaid brands -- Boost and Virgin Mobile -- are treated the same as other mobile virtual network operators or MVNOs that use Sprint's network. This means that that these brands get access to Sprint's own network, but they don't get access to Sprint's roaming partners' networks.

Sprint reaches more than 282 million people with its data service. But it offers a total of more than 313 million people voice service. The difference between Sprint's voice and data reach is due to the different roaming agreements that Sprint has with its partners. And it's also partly due to the build-out process for Sprint's data network.

By contrast, Virgin Mobile only covers about 276 million potential customers with data services and more than 280 million potential customers with voice services. Why? The reason is because Virgin Mobile customers cannot access Sprint's roaming partners' networks.

Sprint has domestic roaming agreements with several carriers around the country and in Puerto Rico. These roaming agreements offer roaming for CDMA voice and/or data services only. It does not have roaming for its iDEN service, which is the network that Boost Mobile also uses. That said, Sprint offers iDEN customers the ability to roam internationally.

For the most part, Sprint's own network covers many major cities. So this means that Virgin Mobile and Boost offer service in those areas. Where there are discrepancies in coverage are largely in rural areas where Sprint hasn't built out its own network.

I hope this helps answer your question.

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

 

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