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Sprint may consider usage-based pricing

Sprint Nextel's CEO says that, like rivals AT&T and Verizon, his company may one day be forced to consider usage-based pricing on its currently unlimited 4G data service.

During a keynote address at the EmTech conference at MIT, Sprint Nextel CEO Dan Hesse says the company may one day consider usage-based pricing for its 4G wireless service.
Marguerite Reardon/CNET

CAMBRIDGE, Mass.--Sprint Nextel has not ruled out a usage-based pricing model for its 4G wireless service, CEO Dan Hesse said Wednesday.

Speaking at the Emerging Technology Conference hosted by the Massachusetts Institute of Technology here, Hesse said the company, which offers an unlimited data plan for its 4G wireless service, may eventually need to go to a usage-based or tiered-service model, if data consumption sky rockets. This is an about-face from Sprint's marketing message, which has played-up its unlimited 4G data service as a way to differentiate itself from competitors.

"We can offer unlimited data, as long as usage on the network is reasonable," he said. "But if I have an all-you-can-eat buffet, and the entire New England Patriots football team shows up for dinner, it's going to run me out of business."

Smartphones are driving up wireless data usage on all cell phone networks with some carriers, such as AT&T, seeing usage increase 18 times in fewer than two years. In fact, this fundamental change prompted AT&T earlier this year to eliminate its unlimited-data plan for smartphones. Now the carrier requires new subscribers to sign up for either a $15 plan that offers 200MB, or a $25 that offers 2GB of data per month. Verizon Wireless still offers an unlimited data plan for its smartphones, but the company has indicated that it will likely move to a tiered model based on usage, when it launches its 4G network later this year.

Meanwhile, Sprint executives and the company's marketing team have been adamant that it will continue offering unlimited data service for its 4G customers. At a demonstration of Sprint's 4G network last week in Manhattan, Iyad Tarazi, vice president of Network Development and Engineering for Sprint, said the company has plenty of spectrum available to continue offering its unlimited service on 4G.

But in his keynote address today, Hesse left open the possibility that the company may either charge consumers more for unlimited service as usage increases, or it could possibly move to a tiered model, as its competitors are doing.

"We will watch this very closely," he said. "As long as usage is reasonable, we can afford to offer unlimited service. But maybe we will have to charge more for unlimited data, if usage increases dramatically."

Hesse pointed out that the company already charges customers using the HTC Evo and Samsung Epic 4G devices $10 more a month for their service, because customers using these phones tend to use more data than its other smartphone customers. Sprint's 3G/4G voice-and-data service for its two 4G-enabled phones starts at $79.99 a month for unlimited data and texting, plus 450 minutes of voice service. Customers using a regular 3G smartphone are charged only $69.99 a month for the same set of services.

"We think the unlimited plans work for consumers because most people don't want to think about their service being metered," he said. "So we'll likely keep it unlimited, but we aren't ruling out metered-pricing plans."

Right now, Sprint has plenty of capacity on its 4G network to serve unlimited bandwidth to all its subscribers. As Sprint struggles to turn its business around, it has used the unlimited 4G data offering as a differentiator to attract new customers.

"Sprint's competitive advantage right now is to stay unlimited while everyone goes to tiered pricing for services," said Roger Entner, senior vice president of the telecommunications practice at Nielsen. "The company is just starting to grow again, so they can't give up their most potent weapon."

But if Sprint's two main competitors, AT&T and Verizon, move to a usage-based model, then Sprint will likely attract the heaviest data users, which could put pressure on its network. Recent studies suggest that it may not take many customers to fill up a data pipe. According to a recent Nielsen report, only 6 percent of all smartphone data subscribers consume half the data on wireless networks.

"Unlimited-service plans are unsustainable over the long term," said Jonathan Segel, executive director at Alcatel-Lucent's Bell Labs. "If you are the only carrier offering an all-you-can-eat plan, all the heavy users will flock to your service and drive you out of business."

Hesse admitted that this could be a problem, which is why the company will have to watch usage patterns carefully on its network. But he also said wireless networks are inherently limited in their resources, and carriers must be able to manage their networks to ensure that all their customers have a good experience on the network.

This is a theme that lobbyists from AT&T and Verizon have emphasized in Washington, D.C., as regulators and lawmakers debate the Net neutrality issue.

Until this point, Sprint has largely stayed out of the Net neutrality debate. But Hesse's statements on Wednesday suggest that the company agrees with many points already made by its prime competitors.

"The issue we have with Net neutrality (regulation or legislation) are the unintended consequences of operationalizing those rules," he said. "We think that the most important thing is to recognize that wireless networks are different. The air is very limited, and resources are scarce."

He went on to say wireless operators need to be able to manage those wireless resources to ensure that all customers have the best experience possible.

"We believe in the principles of Net neutrality," he said. "But the way the proposed rules have been written and worded, it's a solution looking for a problem."

Hesse emphasized that Sprint and other wireless operators that have licensed spectrum from the Federal Communications Commission have made significant investments in their networks that need to be protected.

"Some say the air is property of the people," he said. "But if you pay $5 billion or $6 billion for (spectrum), it's the property of our shareholders. That being said, we are trying to use this limited resource as efficiently as possible for as long as possible."