Prepaid 3G broadband may be the answer

Virgin Mobile (NYSE:VM) may have just provided the wireless industry with a solution to the nagging problem of data caps. Last week, the Sprint (NYSE:S) mobile virtual network operator announced the first prepaid mobile broadband service in the U.S., which allows customers to pre-purchase their megabytes and top them off when the need arises.

By now we all know the story of the Oklahoma customer suing AT&T (NYSE:T) because her first month’s laptop DataConnect bill ballooned from $60 to $5000 due to overage charges. Billie Parks’ case is obviously an extreme one, but it highlights a growing problem in 3G: Customers aren’t managing their mobile usage the way they can manage their voice minutes or text messages, yet the mechanisms operators put in place assume they can. And if customers can’t, they’re punished to the tune of 5 cents to $1 per megabyte.

Virgin Mobile’s plans, however, take the guesswork out of it. If a customer purchases a $20 card — which provides 250 Mbytes to be used over 30 days — and runs the data allotment mid-month, the customer simply can buy another $20 card and get a new 250 Mbytes for another 30 days. Assuming the same customer was on a 3G plan from AT&T, Sprint or Verizon Wireless (NYSE:VZ, NYSE:VOD), a 250-Mbyte overage would cost anywhere from $12.50 to $250, depending on the operator and the plan. The alternative would be to stop using the service for two weeks until the next billing cycle kicked in. Correct me if I’m wrong, but that’s not how people are accustomed to using the Internet, mobile or otherwise.

Virgin’s solution isn’t about maximum value. Anyone wanting to get sheer bang for their buck should subscribe to Verizon or Sprint’s $60 monthly plans, which cap data usage at 5 Gbytes and charge $50 for each additional gig. Virgin, in contrast, charges $60 for each gigabyte. (AT&T’s $60 plan also delivers 5 Gbytes, but it charges 48 cents for each additional megabyte, making a 1 gigabyte overage almost $500.) Instead, Virgin is providing a reasonable alternative to the all-or-nothing plans offered by its Tier I competitors. Its $40-or-less plans already offer much better value to users, enabling more usage than any of the other major operators. But most importantly they more accurately reflect the way the average person will consume mobile data: incrementally, yes, but not on a stopwatch.

Let’s face: We always will be limited in how much mobile broadband we can consume because of the high costs for carriers to deliver it. Because of those costs, customers won’t be able to use 3G the way they use their DSL lines or cable modems at home. They’ll surf and they’ll snack, but the movies on demand will wait for full broadband access at home. They’ll view 3G as a supplementary broadband technology, and accordingly they’ll want to pay supplementary prices, which means the $20-to-$40 range, rather than the $60-to-$80. The difference between Virgin’s $20-to-$40 plans and those of the operators is that Virgin’s allows customers to control their own broadband usage while the major operators are taking a more paternal approach. They’re trying to control their customers’ usage for them. You tell me which approach sounds more appealing.

E-mail me at kfitchard@telephonyonline.com.