This week, Verizon Wireless turned on its long-awaited LTE network – a 4G wireless network that, for now, connects devices via wireless modems -- in 38 markets across the country. This is not the first LTE deployment in the country (MetroPCS holds that honor) nor the first major “4G” network deployment under any interpretation of that term (Clearwire has deployed WiMax across the country, though as an official matter, neither LTE nor WiMax is technically 4G). But as Verizon holds a substantial share of the wireless market, one that exceeds Clearwire, MetroPCS and Sprint combined, the deployment of LTE by Verizon will have a major impact on the industry.

There has been much talk about the pricing plans for the new network, which essentially mirror what Verizon charges for its 3G data-only plans. Initially, Verizon will offer two plans - 5 GB of use for $50, or 10 GB of use for $80, with each additional GB costing $10. Verizon executives dropped numerous hints that the pricing would somehow be different, but Verizon may have copied its 3G pricing to avoid controversy, particularly as the company fights tooth and nail at the FCC to avoid the imposition of any nondiscrimination obligations on its wireless Internet access services.

But why isn’t this causing more controversy? Who declared that $10/GB is the correct price? No company has made cost information for mobile broadband data transfers public, but somehow $10 is the number that major carriers have settled on as the “cost” of 1 GB.

Much as the “cost” of sending or receiving a text message became $0.20 across the industry, the $10/GB figure seems to have settled in, whether the data is passing over 4G or 3G networks, or whether the network is being used at a time of peak congestion or in the middle of the night. In fact, one would think it would cost far less to transfer 1 GB of data over a 4G network than a 3G, because of the network’s greater efficiency.

The sad truth is, in a mobile broadband market without meaningful competition, Verizon Wireless and AT&T can set near-monopoly prices (and continue to generate healthy 40% profit margins). Even if $10/GB is better than past prices have been, there's still plenty of reason to be skeptical about whether consumers are getting a fair deal.

Some initial testers of the network’s performance have reported a sustained ~10 Mbps down, ~5.5 Mbps up connection. Others have identified download speeds as high as 21 Mbps at peak, and 15 Mbps on average. This performance boost means that high quality video watching over a mobile network is now truly feasible. Mobile Internet users no longer need to settle for a choppy, heavily buffered short clip - a LTE connection can sustain a good Netflix stream. Users will undoubtedly respond by increasing their use of mobile connections, especially with the growing variety and popularity of tablet devices like Apple’s iPad, many of which come with built-in 3G connectivity today (and will come with built-in 4G in a year, or sooner). As has been true in many other contexts, today’s bandwidth hog will be tomorrow’s average user.

But what does the pricing schedule for the network mean for subscribers? It means at these speeds, Verizon’s lower 5 GB-for-$50 cap could be exceeded in a mere 32 minutes of continuous usage.

In an environment of widespread video streaming, that $10/GB overage charge can be pretty shocking. Greater performance of the network will encourage greater use, which will lead to shockingly higher bills. How much higher? Here's a back-of-the-envelope calculation: Based on AT&T’s 3G wireless network and its typical real-world performance, Clicker estimated that an average Internet user could watch 13.65 hours of Netflix video before exceeding AT&T’s highest 2 GB data plan. Just multiplying that number out would mean ~34 hrs of Netflix for 5 GB or ~68 hrs of Netflix for 10 GB, which seems pretty reasonable at first blush. (Though, the average American watches ~150 hours of television per month.)

But: streaming video sources often tailor the image quality of the feed to the network performance, delivering a lower quality stream over a slower connection and a higher quality stream over a faster one. So an hour of video viewing over AT&T’s 3G network probably transfers far less data than an hour of viewing on Verizon’s LTE network. For the sake of calculations, let’s assume that AT&T’s 3G network can sustain a 2 Mbps average download, and that Verizon’s LTE network sustains 10 Mbps. Let’s assume that the adaptive video server detects this, and delivers a stream over the LTE network five times larger. Then, extrapolating from Clicker’s data, Verizon’s 5 GB plan would cap a user at a mere 7 hours of streaming; the 10 GB plan, at 14 hours. After that, each additional 1 GB would buy 84 minutes of viewing - thus, almost any movie would cost more than $10 in bandwidth fees. Any user foolish enough to attempt to watch 150 hours of television in a month would run up a bill well in excess of $1000.

Bill shock, anyone?

What’s going on here? Is this all a giant conspiracy to get people to buy more movie tickets, or to rent more from Blockbuster? After all, an $11 movie ticket or a $6 DVD rental looks better when it costs $10 or more to transfer a movie. More seriously: What if Verizon starts offering $5 movies or TV shows over VCast, and waives the bandwidth fees? Would you ever pay $10 to stream a movie off of Netflix, or $15 to download an episode of "Mad Men" from iTunes at 1.51 GB each (plus the prices paid to Netflix and Apple)?

Mobile broadband networks are expensive. But it seems unlikely that they’re quite this expensive, especially given the profit margins put up by the network operators. And we have plenty of reason not to trust the wireless industry oligopoly to set prices. The wireless broadband market exerts very little price discipline, because there are numerous practical impediments to effective competition, as public interest advocates have established repeatedly. The FCC needs to change the rules of the game, by adopting data roaming rules, pursuing smarter spectrum policies, ending exclusive handset deals, and limiting the abuses of vertically integrated backhaul providers, among other things.

If the FCC doesn’t take action to improve the state of competition in mobile broadband networks, consumers will be the ones footing the (shockingly high) bill.