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Verizon's LTE Pricing May Trigger 4G Rate War

Verizon Wireless is undercutting its own 3G plans with pricing for the LTE network scheduled to go live on Sunday, possibly marking the beginning of a fight to capture high-speed wireless subscribers.

The LTE (Long-Term Evolution) network will be commercially available starting Sunday in 38 U.S. cities and more than 60 airports. It will run about 10 times as fast as Verizon's 3G network, according to the carrier. At launch, there will be just one device on sale for access to the network, a USB dongle from LG Electronics for US$99.99 after rebate with a two-year contract.

Data plans for the network will start at $50 per month, with a 5GB cap on downloads. That's $10 less per month than Verizon charges for 3G plans with dongles, and it matches the company's rate for 3G service on laptops and netbooks with built-in 3G modems.

Technically, LTE is a more economical technology for serving data to customers, because it makes more efficient use of radio spectrum than 3G does. But that's probably not what's behind Verizon's pricing, industry observers said.

"It appears to me that their pricing is aimed at getting as many subscribers as possible locked in, using their service, and into contracts before competitors can roll out their networks to match Verizon's growing footprint," said Dan Hays, a partner at management consulting company PRTM. The carrier also wants to shift as many subscribers as possible to a single network, Hays said, though the 3G infrastructure is expected to remain for several years.

Verizon already has at least two national competitors for fast mobile data services being advertised as "4G." Clearwire's WiMax network is in 68 markets, and T-Mobile USA has launched its next-generation network in more than 80 markets. Though designed primarily for mobile use, the LTE offerings may also compete with wired broadband in some areas, Hays said.

But ultimately, the main target is AT&T, the nation's other dominant mobile operator. Verizon's archrival doesn't plan to offer LTE until next year, though it will deploy HSPA+, the same technology T-Mobile is advertising as 4G, in the meantime. In a blog entry on Wednesday, AT&T CTO John Donovan said HSPA+ will deliver speeds comparable to initial LTE networks, a clear reference to Verizon.

As carriers roll out their new networks, competition will put strong pressure on service pricing, analysts said.

"I anticipate a price battle, for sure," said Tolaga Research analyst Phil Marshall. "Price is what these guys are going to be focused on to try to drive demand to their networks."

Verizon's competitive needs are the subscriber's boon, at least for now, Hays said. He expects the aggressive pricing to continue for at least six to 12 months. However, LTE is unlikely to remain cheaper than 3G in the long term, he said.

The superior speed of the network also complicates the pricing picture. Verizon says its LTE network will offer downstream speeds of 5M bps (bits per second) to 12M bps and upstream speeds of 2M bps to 5Mbps. At roughly 10 times the speed of its 3G EV-DO (Evolution-Data Optimized) network, LTE may lead subscribers to use it as they would a wired connection, using video or other applications that may have been frustratingly slow on 3G, said analyst Jack Gold of J. Gold Associates. If they do, the 5GB cap on Verizon's least-expensive plan may come into play.

Clearwire claims that average mobile users on its WiMax network, which is advertised at an average speed of 3M bps to 6M bps, consume more than 7GB per month. Under Verizon's cheapest plan, that would activate overage charges of $10 for each extra gigabyte, so the service would cost about $70 per month. For a comparable mobile plan, which shifts the user over to Sprint's 3G network when they leave the WiMax coverage area, Clearwire charges $55 per month with no cap. That company had its own response to Verizon's announcement.

If the idea of having no limits on downloads is appealing, however, that prospect may not last either, Gold believes.

"Everyone is going to have to go to a metered plan," Gold said. "Wireless is a commodity that gets used up."

Verizon had hinted that LTE would bring dramatically new pricing plans, but those were not in evidence with Wednesday's announcement. In addition to the $50 plan with a 5GB cap, there will be an $80 plan with a 10GB cap. Additional data use beyond those caps will cost $10 per gigabyte. Both devices that Verizon described during the announcement, both of which will be USB modems, are being offered with contracts. As with its 3G data plans, customers will be able to buy the LG modem for the full retail price of $249.99 and then pay the regular per-month rate without committing to a two-year contract, spokeswoman Brenda Raney said.

The initial LTE plans are similar to Verizon's existing offerings for mobile data, but neither Gold nor Hays was surprised that the carrier didn't make more significant changes. New methods of charging for mobile data, such as different plans based on the speed of the subscriber's link, would bring new challenges for network management, Gold said. "I don't think they want to go down that path," he said.

Verizon didn't announce any entry-level plans with smaller gigabyte allowances on Wednesday, which surprised Gold. He expected an option for about $30 aimed at getting more consumers to try out LTE. "Price does matter to people in this space, especially if you're a casual user," Gold said.

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