By ANTON TROIANOVSKI and THOMAS GRYTA
After years of waging a price war, the largest U.S. wireless carriers have reversed course and are adopting a series of changes that in many cases raise costs and reduce consumers' options.
Verizon Wireless lifted the curtain on its long-awaited shared-data plans that allow users to put additional devices under one umbrella. The latest move came Tuesday, when Verizon Wireless introduced its biggest overhaul of pricing in years with plans that let customers share data allotments among as many as 10 devices under a single account.
The approach could save heavy users money as they attach phones, tablets and laptops to Verizon's network. But it also does away with the carrier's cheapest plans for new smartphone customers and pressures subscribers to give up their unlimited data packages when they upgrade to new phones.
AT&T Inc. T +0.09%has signaled its interest in similar plans and is expected to follow Verizon's lead. The shift follows other steps in which carriers imposed higher costs or restrictive conditions on their subscribers, including longer waiting periods before they can trade up to new phones and fees for those upgrades.
"Verizon's pricing that they announced this morning is exactly what we have been kind of signaling in the marketplace for the last couple of weeks," AT&T Chief Executive Randall Stephenson said at an event in Washington on Tuesday.
The carriers are responding to the sea change in their industry's economics brought about by smartphones, especially Apple Inc.'s AAPL -0.43%iPhone.
Carriers are paying heavily to subsidize these devices, which in turn have users relying more on services like email, Facebook and Twitter at the expense of voice calling and texts—the industry's longtime cash cow. The surge in wireless data use also has forced the carriers to invest billions of dollars in expensive new networks.
Carriers' success in pushing through new costs for consumers underscores the heightened pricing power of the biggest phone companies in an increasingly concentrated industry, where Verizon and AT&T account for roughly two-thirds of subscribers and the bulk of the profits.
Regulators have expressed growing concerns about concentration in the wireless industry, shooting down AT&T's proposed $39 billion takeover of T-Mobile USA because of worries that further consolidation could lead to higher prices.
On Tuesday, some customers voiced disappointment that Verizon wasn't making smartphone ownership more affordable. Bryan Hill, a stay-at-home dad in the Pittsburgh area, said he hoped the new plans would allow him to afford smartphones for himself and his 11-year-old daughter.
"I was figuring it would be a way that we could affordably do it and share the data among several devices," Mr. Hill said. "It's still unachievable for a budget-conscious person to jump onto the smartphone bandwagon."
Wall Street, however, has applauded the new fees and price increases, which have come after years of price wars. In a recent note to clients, Credit Suisse analyst Jonathan Chaplin said U.S. carriers were doing a good job of signaling and following each other's price increases.
"We're finally seeing the carriers say, 'Enough!' " Mr. Chaplin said in an interview. "They all seem to be focused on the same objective—not beating each other up but extracting value from their existing base."
Verizon's new approach to pricing essentially reverses the proportions of its bills to better reflect the way people actually use their phones. Voice and text fees now account for around two-thirds of subscribers' bills, with the rest accounted for by data service that covers activities like surfing the Web and listening to streaming music.
For new customers, Verizon is flipping that arrangement around with plans that charge flat rates for voice and text while shifting the bulk of the monthly bill to data use. For an iPhone user, a package of unlimited voice and text service will drop to $40 a month from $90, but the price of 2 gigabytes of data will jump to $60 from $30.
"I really look at it as simplifying the voice tiers and giving customers less things to have to choose from," said Tami Erwin, chief marketing officer for Verizon Wireless.
Customers who pay the carrier for unlimited voice and text will save money. But for some budget-conscious smartphone users, the new plans will amount to a hefty price increase. New customers, for example, won't be able to save money by limiting the number of voice minutes they use or text messages that they send. The new plans force them to buy those services whether they need them or not.
The cheapest option for a new Verizon smartphone customer today costs $70 a month, covering 450 voice minutes, 2 gigabytes of data and no text messages. After the new plans take effect on June 28, that option will disappear for new customers, who will pay $100 a month to get 2 gigabytes of data, along with unlimited voice and text.
Existing customers can keep their current plans, with one exception. Users on unlimited data plans will face a tough choice the next time they upgrade their phones: Pay the full price of the upgrade—typically hundreds of dollars more than the subsidized price—or drop the unlimited plan.
Analysts now expect AT&T to follow Verizon's move to implement shared data plans. AT&T declined to comment.
In an unusual series of public remarks over the last year, both carriers said they were preparing to institute those plans. Unlike past pricing changes, executives from both carriers didn't hold their plans close to the vest but instead gave the public—and each other—a window into strategic discussions.
That's a big change from just two years ago, when wireless carriers were slashing the price of voice calling with little warning to their competitors. On the morning of Jan. 15, 2010, Verizon said it would drop the cost of its unlimited calling plan by 30% to $70 a month. AT&T followed suit later in the day with a similar decrease.
"We were always very tight-lipped on any pricing changes we were going to make," said Denny Strigl, the retired president of Verizon Wireless majority owner Verizon Communications Inc. But now, he said, "the carriers are probably concerned and hoping that if they raise prices the other guy will, too."
The smaller national carriers, Sprint Nextel Corp. S +0.68%and T-Mobile USA, haven't said they plan to emulate Verizon's shared data plans and have criticized such plans as too complicated and bad for consumers.
Pushing prices higher is now especially important for carriers. Verizon was able to post big gains in wireless service revenue over the past five years even as its average revenue per retail user grew slowly—to $53.66 a month in the first quarter of 2012 from $50.73 in the first quarter of 2007—thanks to big gains in its customer base.
But that growth is unlikely now that the U.S. market has become saturated, with more than one wireless device for every person.
Verizon is also hoping shared-data plans convince subscribers to connect more devices to its network and pay more for service.
Wireless carriers have worked for the past few years to boost their data revenue. The first step came as both Verizon and AT&T eliminated unlimited data plans for new customers. Meanwhile, carriers including Sprint, S +0.68%MetroPCS Communications PCS -1.74%and AT&T have raised the prices they charge for data.
Carriers have also looked to reduce how much they're spending to subsidize smartphones for contract customers, in part by trying to limit how often people upgrade to new devices. In recent months, Verizon, AT&T, and Sprint all added fees for customers upgrading to a new phone.
"This is an unusual case where the pricing moves that the players are making are not about trying to get unilateral advantage so much as they are trying to put the industry on a sustainable, long-term footing," Bernstein Research analyst Craig Moffett said.
What the Changes Mean for You
Verizon's new wireless plans will require customers to study their current bills and study the new options to decide whether they should switch. Here are some common questions and answers:
Q: What are the main changes?
A: Verizon is eliminating voice and texting options. All customers will get unlimited calling and texting each month. Instead, users will pay between $50 and $100 for a bucket of wireless data they use each month and a monthly fee for each device on the plan.
Q: What does it cost to add a second phone or a tablet?
A: Verizon allows up to 10 devices on each plan. The monthly cost of each device varies: $40 for a smartphone; $30 for a feature phone; $20 for a laptop or USB stick; $10 for a tablet computer.
Q: Will it cost more or less?
A: It depends. Customers with the cheapest smartphone plans would pay more, but bills for Verizon customers already paying for unlimited voice and text would decline.
Q: When do the changes start?
A: The plans are available—and mandatory for new customers—starting June 28.
Q: Can I keep my current plan?
A: Existing Verizon customers who are on a tiered data plan (say, $30 for 2 gigabytes) will be able to keep their plan.
Q: What about unlimited data?
A: Customers with unlimited data can keep their plan if they don't change phones. After June 28, they must pay full retail price when they upgrade to a new phone (i.e. $649 for an iPhone 4S) to keep their plans.
Q: What happens if I go over my monthly bucket of data?
A: The monthly plans begin at $50 for 1 gigabyte and range up to 10 gigabytes for $100. The fee for going over the limit is $15 per gigabyte.
Q: Can I put a limit on how much data are used by the different devices on my plan?
A:Yes. If you want to make sure your son's online video habit doesn't blow through your family's data allotment in the first week of the month,Verizon will let you set a cap on how much data each gets to use. The limits cost $4.99 per device per month.
Q: Why is Verizon doing this?
A: The U.S. wireless market is saturated and after years of competing on costs, wireless carriers are now trying to boost revenue by charging customers more for their data use. They're also trying to convince consumers to connect more devices to the wireless network.
Q: What are rivals doing?
A: AT&T has signaled it plans to move towards a similar fee structure. Sprint and T-Mobile USA haven't said they plan to follow suit.