Verizon’s reputation on the line in coming data deluge

By offering customers unlimited data, Verizon Communications is putting at risk the one thing that made it America's wireless king - its network.

The decision to let users stream and download at will, with no costly overage charges to worry about, threatens profit margins and puts additional strain on a network hailed by reviewers as the most reliable in the United States.

While Verizon says it's prepared to handle the coming onslaught of traffic, the carrier has its work cut out for it: The company serves the largest number of users - 114 million nationwide - with the least amount of airwaves per customer connection.

'An unlimited offer is dangerous,” said Roger Entner, an analyst at Recon Analytics. 'If they sign up a lot of people, it will congest the network, and they run the risk of people saying, ‘the network sucks.'”

Verizon's ability to retain its reputation as the nation's premium network provider will be critical as pricing wars escalate with rivals AT&T, Sprint and T-Mobile US, whose CEO John Legere took credit last month for dragging the phone giant 'kicking and screaming into unlimited.”

'Welcome to the game Verizon,” Legere said on earnings call. 'Let's compete on price, let's compete on network.”

For years, Verizon has been able to charge a premium price because it bills itself as the premium network in the United States, a claim reinforced by a No. 1 rank in overall performance for the last three and a half years in RootMetrics studies.

In an all-you-can-eat data market, total wireless traffic is expected to grow at a 70 percent to 80 percent annual rate, up from 50 percent to 60 percent now, according to wireless analyst Chetan Sharma.

Until its change of tune last month, Verizon had sworn off unlimited plans, saying they would lead to lower margins and network congestion.

'The majority of people don't need unlimited plans,” former Verizon Chief Financial Officer Fran Shammo said at an investor conference last fall. 'But the people who use unlimited plans can be abusive, they can really wreak havoc to your network.

'And at the end of the day, I continue to say you cannot make money in an unlimited video world. You just can't do it because you need to generate the cash flow to keep up with your demand.”

The company has gotten more comfortable with the idea since then, and has been making technological changes to its network to handle the ever-increasing traffic loads. Verizon investors have been unfazed so far with the move to unlimited, with shares up 2.3 percent since last month's announcement.

'Spectrum is only one element of a network,” said Mike Haberman, Verizon's vice president of network support. 'How you put the network together is far more important.”

In advance of its decision to start selling an unlimited data package, Verizon was busy with upgrades. The company just boosted network capacity by 50 percent with new systems that take separate radio frequencies and combine them into one large pathway, Haberman said.

The company also has been adding more cell sites and transmitters in cities and connecting those sites with high-capacity fiber-optic lines.

For consumers watching YouTube videos or the NCAA's March Madness basketball tournament, the differences in network performance between Verizon, AT&T, T-Mobile and Sprint may not be that meaningful anymore. That's one reason why Verizon is testing fifth-generation, or 5G, broadband service this year.