Analyst Says Verizon's Unlimited Data Offering Is 'Dangerous'

Verizon Communications Inc. (NYSE: VZ) may have had no choice but to offer its customers unlimited data due to the heightened competitive nature of the wireless business.

Verizon's peers, including T-Mobile US Inc (NASDAQ: TMUS) have been offering unlimited data plans for quite some time.

The Potential To Backfire

But Verizon's plan could backfire, at least according to Roger Entner, an analyst at Recon Analytics. He told Bloomberg Verizon's unlimited data offer is "dangerous," and if it attracts tons of new customers, the network could become congested and clients won't be impressed with the poor quality of the network.

The Bloomberg report further noted that offering customers the ability to download as much as they want and when they want could eat up its profit margins that have already come under pressure.

Moreover, Verizon's move into the unlimited data space marks a reversal from its business of the past few years where it billed itself as a premium network given its top ranks in many studies.

Related Link: Verizon's Network Has A New Top Competitor, And It's Not AT&T

But Verizon could see a surge in wireless traffic a 70 percent to 80 percent annual rate, up from 50 to 60 percent now, according to Chetan Sharma, another wireless analyst.

The Actual Need For Unlimited Data

Sharma told Bloomberg that most of Verizon's customers don't actually need unlimited data plans. However, now that it is at their disposal, these clients hold the power to "wreak havoc" on the network.

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

At last check, shares of Verizon were down 1.38 percent at $62.68.

Image Credit: By Anthony92931 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons