Why Verizon Believes You Don't Need Unlimited Data

By Markets Fool.com

It's possible to have an argument that sounds good and even feels true that doesn't hold up when someone looks deeply at it.

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For example, you could argue that the New York Yankees' high payroll has hurt the competitive balance in Major League Baseball. As a Red Sox fan I would cheer that opinion (quietly, because, well, glass house), but in reality, a quick check of playoff teams and World Series winners over the past two decades shows that spending big does not guarantee success.

Verizon (NYSE: VZ) is hoping that wireless customers are more easily swayed than baseball fans, as it has published an essay on its website that declares unlimited wireless data unnecessary. The well-reasoned piece byJack E. Gold, a veteran industry analyst, has its points, but they aren't points that hold up well to scrutiny.

Publishing the piece is a transparent attempt from Verizon to explain to consumers why they don't really want the unlimited plans Sprint (NYSE: S) and T-Mobile (NYSE: TMUS) are offering. The company even goes out of its way to say, "The thoughts, opinions, and suggestions of the author may not necessarily reflect those of Verizon Wireless." That sounds nice, but it's not like the company is required to give a spot on its website to outside analysts.

Verizon clearly wants to advance the idea that unlimited data is not needed and perhaps bad. The message, of course, is likely to be as well received as someone standing outside the all-you-can-eat buffet and explaining why eating in moderation is best for us.

Of course, the food guy may have a valid point, while Gold is basically saying that if we have unlimited data, we will use it, which will cause all sorts of problems.

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What the essay argues
Gold argues that if customers had access to unlimited data, they would take advantage of it -- and that would cause network problems:

Let's face it, if everyone had unlimited data and used it fully, the performance of the networks would suffer because of bandwidth restrictions and the "shared resource" nature of wireless. The bottom line is: Users agree that degrading the networks is something that they don't want to happen.

He also argues that if people are using data-degraded networks, then the carriers would be forced to improve them, which would also be bad for consumers:

Invariably, degraded networks would cause the carriers to seek upgrades to their networks to increase capacity. Much like highways that need to be widened for peak rush-hour traffic, this would require major investments that someone would have to pay for -- that someone being the subscribers.

That sounds true, but Sprint and T-Mobile offer unlimited data and they charge less than Verizon. Yes, Verizon has a better network than those two companies, but the gap has been steadily shrinking, according to RootMetrics' twice annual survey.

T-Mobile specifically has managed to improve its network while offering attractively priced unlimited data plans and posting spectacular growth.

The RootMetrics results for the second half of 2014 Source: RootMetrics.

This is a bad argument
Not offering unlimited data keeps Verizon's costs down. If the company did offer unlimited plans and stopped improving its network, then yes, the system would bottleneck and consumer experience would suffer.

Gold argues as if wireless data capacity was somehow a limited commodity that isn't affected by a company's decision to invest in it:

Keeping adequate speed and performance while allowing all users to share the limited commodity we call wireless data is the fair way to deal with wireless connectivity. And ultimately, that is what is beneficial for wireless consumers.

That sounds right -- and the logic works if you're discussing limited resources like oil or natural gas, but keeping unlimited data viable is a question of balancing pricing and investment. This is a bad line for Verizon to try to sell, and it's an argument likely to anger consumers.

The article Why Verizon Believes You Don't Need Unlimited Data originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He has an unlimited data plan from Sprint and he uses it. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.