Verizon Soft-Caps Make Sense, But Carry a Harsh Penalty

When Verizon Wireless (s vz) triumphantly announced it would be carrying Apple’s iPhone (s aapl), the carrier assured the public its network could handle the data load. We may now know why Verizon seemed so confident: a leaked PDF indicates that the carrier will employ both bandwidth throttling for heavy network users and data transcoding techniques to reduce strain on the network. That may sound reasonable, but the carrier may penalize heavy users an extra month.

The Boy Genius Report blog noticed the PDF, which has two pertinent points. Here’s the part about reducing bandwidth for high usage during a billing cycle:

“[i]f you use an extraordinary amount of data and fall within the top 5% of Verizon Wireless data users we may reduce your data throughput speeds periodically for the remainder of your then current and immediately following billing cycle to ensure high quality network performance for other users at locations and times of peak demand.”

Although the statement is vague in terms of how much data qualifies you as user in the top 5 percent and how slow your data speeds will be if you fall in that category, the concept is similar to what T-Mobile adopted last April. T-Mobile’s policy kicks in after 5 GB of network use, but only continues for the remainder of the current billing cycle. Verizon appears to be taking a punitive approach because the slow throughput will continue into a second full billing cycle, which won’t go over well with customers.

The second discussion point in the Verizon PDF partially reminds me of Opera’s business model. No, Verizon isn’t making a browser, but if the PDF is accurate, it will be actively optimizing data files so fewer wireless bits are used by network users, similar to how Opera compresses and service data:

We are implementing optimization and transcoding technologies in our network to transmit data files in a more efficient manner to allow available network capacity to benefit the greatest number of users. These techniques include caching less data, using less capacity, and sizing the video more appropriately for the device. The optimization process is agnostic to the content itself and to the website that provides it.

This too, isn’t new. I remember when I purchased my first EVDO modem from Verizon back in 2005, a similar approach was used. Verizon’s software for the modem included Venturi compression to help reduce bandwidth by optimizing the data stream. While that sounded good in theory, I have vivid memories of fuzzy images due to the compression technique. But that was six years ago, which is equal to a few technical cycles, so hopefully, history doesn’t repeat itself.

While many consumers think of mobile broadband as an “always on and available to use as much as desired” type of utility, it simply isn’t. Towers don’t pop up overnight, and even if they did, they need a fast wired connection to the web. Wireless spectrum from phones to such towers is limited too; if the concept doesn’t make sense, just try to connect 100 devices to your home wireless network to simulate this problem at a high level. If you’d rather not stress your home network, my colleague Stacey explains the concept in this post from last year.

So carriers have to find ways to handle the data load, especially when a new device that historically attracts heavy data users is added to the mix. AT&T (s t) wasn’t prepared for this onslaught by the original iPhone and saw its network demand rise more than 5,000 percent in three years time, for example. And according to an interview that Stacey had with yesterday with Joel Brand, VP of product management of Bytemobile, operators say that 90 percent of their network use is consumed by 10 percent of their users.

Instead of playing the network investment catch-up game that has engaged AT&T these last few years, Verizon is getting an early jump on the issue by using policy: one that will help load balance the network demand as the Verizon iPhone arrives. This approach supplements the three other reasons why I don’t believe the iPhone will cripple Verizon’s network.

I asked folks on Twitter about the situation but haven’t seen any negative reactions just yet. Sloanb, for example finds the throttling approach to be fair because there are no overage fees, although I’m willing to bet he didn’t see the punitive steps in month two:!/sloanb/status/33182397948231681

And mdflores understands the limitations of wireless networks:!/mdflores/status/33175200736481280

What do you think? Is it a necessary evil or cheap insurance to offer a certain level of network reliability? Would you rather have free rein to use what you pay for when it comes to wireless broadband, and if so, how could that be done without impacting those who want access but can’t afford the same capacity? Those questions aside, I think most of us will agree that slowing bandwidth into a second month seems far more punitive than paid service should allow.

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