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Verizon to End the Unlimited Data Party

It’s the beginning of the end for unlimited data plans on smartphones. Verizon Wireless, the largest U.S. mobile carrier, plans to stop selling unlimited data plans to new customers and instead introduce two service plans with monthly data caps.

Verizon's Unlimited Data Party to End

Verizon's Unlimited Data Party to End

The new data plans are expected roll out over the next four to six months, according to a report in The Wall Street Journal.

Verizon’s move comes on the heels of AT&T’s decision in June to retire unlimited 3G data plans. Other carriers are also considering doing the same. Earlier this week, Sprint CEO Dan Hesse said Sprint might have to reconsider unlimited data for its 4G network if data usage increases significantly.

The explosive growth of smartphones has led to a significant uptick in the use of mobile internet services. Consumers are now checking more than just e-mail on their phones: The rise of social networking sites such as Facebook and Twitter, mobile video and apps means users are now sucking in massive amounts of data through their wireless connections.

Average data consumption increased to 298 MB a month in the first quarter of this year, from about 90 MB a month for the same period last year. That’s a gain of approximately 230 percent in a year, according to research by Nielsen Mobile.

The end of all-you-can eat pricing plans generally causes lots of customer outrage, since customers feel they are getting a worse deal than they had before.

But usage-based pricing is fair, says Nielsen. The top 6 percent of smart phone users consume about half of all data. And based on the 60,000 phone bills that Nielsen analyzed, the company said about 99 percent of consumers are better off with a tiered pricing model than a flat-rate one.

So far, Verizon hasn’t said exactly what its new data plan will look like. But the company is clear it won’t copy AT&T, which offers a basic plan for $15 a month for 200 MB of data and a $25 plan for 2 GB of data. Additional data charges apply if customers go over those limits.

Tiered data, though, may be the optimal solution. As Epicenter’s Ryan Singel pointed out in July, the real problem for networks isn’t heavy data usage but congestion on the airwaves. Data caps may be one way to solve that problem but they also mean consumers are likely to use their phones less– a long term scenario that doesn’t benefit telecom carriers or handset makers.

Instead, telecom carriers could price data based on when it is used. So, for instance, carriers could offer 1 GB a month of peak data, with extra gigs priced at peak and off-peak rates. That would let consumers decide when they want to watch their YouTube videos or listen to Pandora on their phones.

For now, it seems unlikely that idea will come to pass. Instead, the carriers are deciding that its time to go off the all-you-can-eat buffet of data and start thinking about dieting.

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