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Carriers are betting that customers will stay, profits will increase

The U.S. carrier market is already slightly odd in comparison to other top smartphone markets like China or Europe.  In the U.S., carriers offer deeply subsidized prices, but inflate contract prices to compensate.  The approach stands in stark comparison with other regions where customers buy their devices at or near cost and then enjoy cheaper contracts.  The American system is a clever one, though as it offers the deceptive appearance of "cheap" bleeding edge upgrades to the consumer, leading to more frequent device purchases -- something that fuels both carrier and gadgetmaker revenue.

U.S. carriers have also figured out that they can charge small upgrade fees as another way of stoking profits, without having a psychological impact.  Following the lead of Sprint Nextel Corp. (S), AT&T, Inc. (T), and Deutsche Telekom AG (ETR:DTE) subsidiary T-Mobile USA, Verizon Wireless -- a join venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD) -- announced that it would be terminating free handset upgrades, installing a $30 USD upgrade free.

As mentioned, many handsets on the U.S. market are discounted to the point that the customer pays nothing up front.  This will not change under the new system, but in effect the customer will now be paying something for any handset, as they will pay the fee, come upgrade time.

Verizon expensive
Verizon, the largest USA carrier is about to become the latest to charge an upgrade fee.
[Image Source: Flickr/Exif]

While it might seem that upgrade fees would drive customers to other carriers, since everyone is doing it, the flow of outgoing versus incoming customers is unlikely to change substantially.  And for every customer who does stay out of loyalty perks, such as convenience, work privileges, or family plans, the carrier will pocket a bit more profit. Thus at the end of the day, upgrade fees are kind of like ATM fees -- financially bad for the consumer in the most direct sense -- but a win-win situation for the fee collector.

Verizon's upgrade fee of $30 USD is roughly in line with AT&T and Sprint, who both charge $36 USD.  Sprint and AT&T held steady with a $18 USD upgrade fee for about a decade.  This status quo broke in Sept. 2011 when cash-strapped Sprint doubled its fee.  AT&T followed in suit in Feb. 2012.  T-Mobile USA -- a heavily budget-oriented carrier with cheaper plans but poorer coverage and handset selection -- has the lowest fee -- only $18.

While Verizon may be a late comer to the fee game, its arrival is significant as it is the nation's largest carrier, controlling over a third of paid mobile subscriber accounts in the U.S.

Verizon's new fee will take effect April 22.

The U.S. carrier market is currently in flux.  While Sprint and T-Mobile USA are posting heavy losses and teetering on the edge of elimination or consolidation, AT&T and Verizon Wireless are waging a war for market dominance.  Verizon and AT&T rose up from the consolidated "Baby Bells" that formed when the government chopped up the old AT&T in 1982.  The two carriers have been in a race to deploy 4G LTE networks.  Verizon is currently winning the coverage battle, but AT&T is winning the speed war.


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/shrug
By Reclaimer77 on 4/12/2012 1:01:37 PM , Rating: 5
First rule of business: Charge no less than the market will bear. In this case the other carriers already showed Verizon that customers can and DO pay these fees. So it's kind of a no brainer for Verizon to do the same.




RE: /shrug
By gamerk2 on 4/12/2012 12:59:52 PM , Rating: 1
Simpler then that: The product is wanted, and everyone else is charging fees. Thus, there is no incentive whatsoever for not charging the fees yourself.

Price competition in the US is dead.


RE: /shrug
By Reclaimer77 on 4/12/2012 1:15:20 PM , Rating: 4
Please don't use this an excuse for another gamer America bash session. Competition is alive and well in the US, it's just nobody WANTS to go with the more competitive carriers. T-Mobile, Cricket, and Boost have the best rates in the country, but people want their iPhone with unlimited everything plans etc etc etc, so they won't compromise and go with a competitive carrier.

I went with Sprint because I was determined to have unlimited data. Do I even USE that much data a month? Nope. But for only $20 more a month than the next carrier, what the hell, why not.

You have a strange view on what competition is, a lot of people do.


RE: /shrug
By dark matter on 4/12/2012 1:25:41 PM , Rating: 2
Explain what people are paying the $30?

Previously they didn't have to pay this.

What "VALUE" does the consumer get.


RE: /shrug
By Reclaimer77 on 4/12/2012 1:42:25 PM , Rating: 1
Whatever, I'm not a Verizon employee. It's not my job to defend a fee. If you don't want to pay it, don't. If you would really switch carriers over a 1 time $30 fee, that's your prerogative. I'm not sure what you want from me.

Value? I bought lunch today, the value was I got to eat. The "value" from this fee is you get to upgrade your phone. What else can you say?


RE: /shrug
By room200 on 4/13/2012 4:27:58 AM , Rating: 1
You're no Verizon employee, but you're nothing more than a shill for big business because, I can only surmise, you figure "One day I'll be them". LOL


RE: /shrug
By mcnabney on 4/13/2012 9:30:29 AM , Rating: 3
To be fair, all carriers also have activation fees. So if you jump to a different carrier you will just end up paying an activation fee there.


RE: /shrug
By Solandri on 4/12/2012 1:58:52 PM , Rating: 3
quote:
What "VALUE" does the consumer get.

Should be pretty obvious - they're getting a new phone.

That it used to be free doesn't mean that it ever should have been free. If you're basing your opinions on new, upgraded stuff being free, then I've got a bridge I can sell you - for free. Favors are free. Charity is free. Gifts are free. But free doesn't make the economy work. Free is not a legally binding contract (there has to be consideration - something of value has to be exchanged for something else of value).

There are many ways the subsidized phone system is screwed up, but this isn't one of them.


RE: /shrug
By Cheesew1z69 on 4/12/2012 3:54:36 PM , Rating: 2
Except, it wasn't free. You still have to pay for the phone.


RE: /shrug
By Mint on 4/12/2012 1:35:41 PM , Rating: 1
I think American competition in mobile is alive and well.

I'm with PagePlus prepaid. I only pay 4c/min, and though I pay ~$1/MB for 3G, that's fine for the little data I use for occasional email and traffic data. T-Mobile has decent GSM prepaid, too.

You don't get these kinds of prepaid options in Canada or the UK.


RE: /shrug
By Reclaimer77 on 4/12/2012 2:06:10 PM , Rating: 2
Nice Mint. I've never even heard of PagePlus, but I love that those kinds of options exist.

Speaking of Canada, if we thought WE paid a lot...
http://www.wired.com/gadgetlab/2010/10/mobile-plan...


RE: /shrug
By Solandri on 4/12/2012 2:13:58 PM , Rating: 2
I used to commute across the border to work in Canada for a few years. It was actually cheaper for me to add an International roaming option to my US. plan and pay $0.30 per minute for calls in Canada, than to get a Canadian cell phone.


RE: /shrug
By Reclaimer77 on 4/12/2012 2:33:04 PM , Rating: 2
Yeah... that is pretty bad.


RE: /shrug
By Heidfirst on 4/12/2012 2:49:41 PM , Rating: 2
prepaid options are very much available in the UK.
Indeed my cousin from NJ who is over here for a few months @ NYU London says they are much more prevalent here than there.


RE: /shrug
By jRaskell on 4/12/2012 2:08:16 PM , Rating: 2
Perhaps some of us just want to be able to use our devices everywhere we go.

I was with T-Mobile for half a dozen years, but finally got fed up with not having coverage in nearly half the areas I frequented, and having observed absolutely zero increase in coverage over those half a dozen years.

So I jumped carriers and now have almost 100% coverage with Verizon. I can't exactly say I'm completely happy with Verizon, but I have no coverage complaints, and that helps mitigate my other complaints.


RE: /shrug
By Reclaimer77 on 4/12/2012 2:15:14 PM , Rating: 2
Exactly. That's the compromise I was talking about. I think people have a general understanding of how Verizon works. They will rape the SHIT out of you with their smartphone plans, but they certainly have the best network coverage.

And isn't that how things generally work in other markets? When I buy a steak at Joes Pub, it's no Ruth's Chris.


RE: /shrug
By Chaser on 4/13/2012 7:04:39 PM , Rating: 2
quote:
T-Mobile, Cricket, and Boost

I agree with you often but the "competitors" you listed don't compete well if coverage and reliability is concerned.

T-Mobile is great if you live in a decently sized city and never venture away from a major highway into rural areas.

Cricket and Boost ride the backbones of national carriers re-selling potential unused access. Both these providers make you settle for limited access -aka if a tower gets full you're cell won't work while the prime users will, AND their coverage is very limited compared to them as well.

Just like anything else, -especially when it comes to no contract budget providers- you get what you pay for.


RE: /shrug
By Adam M on 4/15/2012 5:38:07 PM , Rating: 2
Real customer service seems to be a thing of the past, as does customer value. Its all about the cost of customer acquisition versus long term profit. I only have Sprint for the unlimited data, I really like having everything a smartphone can do at my finger tips, but as I use %90 of my data at home, I might be better served with home internet service and a cheaper phone service like Cricket or Boost. I was almost ready to leave Sprint for something cheaper but then I saw the EVO LTE and Galaxy 3s, I still have some thinking to do.


RE: /shrug
By nafhan on 4/13/2012 2:30:05 PM , Rating: 2
Competition is NOT the same thing as merely "lowering prices all the time." In fact, the price going up by $30 could be an example of something that happens in a competitive market. The bigwigs at Verizon may feel that the benefits they provide in areas other than price outweigh this minor advantage.

On a more personal note, this is the straw that broke the camels back, for me. In a few months, I will be taking a detailed look at what kind of coverage Verizon's competitors provide, where I live...


RE: /shrug
By phantom505 on 4/12/2012 1:54:20 PM , Rating: 2
Too bad you piss and moan when I say that labor should charge all the market can bear in the form of Unions.

QFT.


RE: /shrug
By Reclaimer77 on 4/12/2012 2:00:55 PM , Rating: 1
You don't seem to realize how intellectually bankrupt that statement is. Unions purpose is to artificially dictate wages and benefits far higher than the market would bear otherwise. This is proven by comparing the disparities in union vs non-union workforces.

You're probably trolling me so I just wasted my time anyway.


RE: /shrug
By Black1969ta on 4/13/2012 12:11:10 AM , Rating: 2
Unions were created to level the bargaining power between individual laborers and powerful industrial tycoons, once laws accomplished that, Unions become obsolete.
In order to maintain power, Unions leaders exploit the greed of laborers and eroded power of the tycoons to artificially raise wages above equilibrium.

The purpose of Unions were never to balloon wages.


RE: /shrug
By Reclaimer77 on 4/13/2012 11:32:07 AM , Rating: 1
I know what the original purpose of unions were. That purpose hasn't been needed in like 40 years.

Unions TODAY balloon wages. We have federal and state worker protection laws and regulations out of the ass. We have a minimum wage. We have, nearly, mandatory health insurance for all workers.


RE: /shrug
By room200 on 4/13/2012 4:25:49 AM , Rating: 2
Businesses "artificially" inflate prices all the time. Do you think there's a coincidence that gas station A and gas station B have the same price as gas station C even though they may only be a block from each other? Then when one changes the price the other 2 follow suit? You call THAT competition? Sounds like collusion/price-fixing to me. Without unions, wages of EVERYONE drop.


RE: /shrug
By Solandri on 4/13/2012 2:01:54 PM , Rating: 1
Try running a business some time. In your fantasy, gas station A raises their prices. Gas station B notices the raised price, and raises theirs to match. That's about as likely as you and me walking into the grocery store and saying "I will pay only 50 cents for this apple." "No, I will only pay 45 cents." "No, I will pay 40 cents." And expecting the store to honor the lowest bidder.

What really happens is that gas station A raises its prices. Gas station B rubs its hands in glee as most of the customers come to them instead of A. Gas station A realizes their plan to make more money by raising prices backfired, and eventually lowers its prices below B's. B then has to decide if they want to match it, or keep the higher price and hope they don't lose too many customers. Eventually they both go as low as they're willing to go and still stay in business. That's why the gas prices are the same.

The only time A raises prices and B matches is when A's margin becomes so thin they feel they must raise prices to pay the bills, else they'll go bankrupt. And the only time B will match the price increase is if they feel the same way. Otherwise B keeps the price lower, all the customers come to it, A goes bankrupt and gets bought by someone who might be able to manage it better with a thinner margin than the previous owner.

- Buyers only have power to raise prices by outbidding other buyers. If they bid less than other people, the seller will sell to other buyers. Buyers feel powerless to lower prices because the only way for them to lower prices is not to buy.

- Sellers only have power to lower prices by undercutting other sellers. If they raise the prices on their own, they will lose buyers to the other sellers. Sellers feel powerless to raise prices because the only way for them to raise prices is not to sell.

The two are symmetric.


RE: /shrug
By room200 on 4/13/2012 9:31:44 PM , Rating: 2
Your scenario makes sense ONLY if gas station A reduces its prices after increasing them. You know full well that doesn't happen. I even did an experiment last year and I watched gas stations in my neighbor hood for 3 months and I noted all of the price changes; I didn't just pull the scenario from a fantasy.


RE: /shrug
By Reclaimer77 on 4/14/2012 9:22:59 AM , Rating: 2
Yes you did room. Your post had NOTHING to do with reality.

Not sure where YOU live, but where I live the gas stations that regularly have a history of competitive (low) prices routinely have lines at the pump. Other more expensive stations do not. In your fantasy scenario, this would never happen because everyone would be raising prices.


RE: /shrug
By nafhan on 4/13/2012 2:39:20 PM , Rating: 2
That's not the purpose of a union... Unions were created to ensure "fair" conditions for union members (i.e. laborers).

Depending on the labor conditions you are discussing, and the reasonableness of the union's demands, unions can certainly be either good or bad for society as a whole - just like most organizations.

If you're specifically addressing unions, now, in the US, I'd say they mostly have a negative impact on society. Earlier in the last century, though, the same unions played an important part in fixing some serious problems.


RE: /shrug
By bjacobson on 4/12/2012 2:33:03 PM , Rating: 2
hm, put that way, is an interesting point.


greed
By craiz on 4/12/2012 1:21:27 PM , Rating: 3
They should pay me 30 bucks for being with them for over 6 years.




RE: greed
By Solandri on 4/12/2012 2:08:18 PM , Rating: 2
That's just it. If people tended to switch carriers, they'd be paying you to stay. But people tend to stick to the same carriers (as you've done), so they can charge you to stay and you'll still stay. Most carriers are charging existing customers $30 for upgrading their phones, while new customers get ~$100 discount on their first phone. So that's $130 you're giving up by not switching carriers. Yet people still stay with the same carrier.

They don't care about your loyalty because they're gambling that you'll remain loyal even if they don't care about it. They're like the abusive spouse who beats you up, and you still keep coming back. If you don't like it, switch carriers when your contract is up and pocket the extra $130. Simple as that.


RE: greed
By theapparition on 4/12/2012 4:22:23 PM , Rating: 2
6 years? That's it.

Try more like 20+ for me, going back to Bell Atlantic Mobile, before the mergers that created Verizon.

Even so, I don't get much love from them, other than the service they offer everyone else. Which, for me at least, has been stellar.


RE: greed
By IcePickFreak on 4/12/2012 8:25:47 PM , Rating: 2
I've been with them for 10, the only slack I get is a discount for where I worked (I no longer work there, oops I forgot to tell them.) That said, my contract is up at the end of the month and I'll be jumping the VZW ship and going to a much cheaper non-contract plan elsewhere.

Most technologies get cheaper as time goes on, but cellular service seems to go the opposite direction. More charges, less service (lower data caps etc.)


No to fees
By KOOLTIME on 4/12/2012 1:30:31 PM , Rating: 2
well this effect also has side effect, that the phone pricing deals they do, aka free phone with new 2 year contract, this upgrade price fee will not be so good a deal now.

Folks will eventually buy phones and then set em to a carrier, if they all keep adding fees for every single agenda. Especially since they charge monthly for such services, to include more fees, is just plain GREED.




RE: No to fees
By bjacobson on 4/12/2012 2:34:01 PM , Rating: 2
this is probably only for those upgrading before their term is up.


RE: No to fees
By Salisme on 4/13/2012 7:15:00 AM , Rating: 2
Is there a rate difference if you supply your own phone? Last time I asked I was told the rates stay the same, meaning were screwed if you do and screwed if you don't. It didn't make sense to outright purchase your own phone unless you wanted month to month. And if I did, then I would lose my "grandfathered" unlimited data plan.

It would make sense to get cheaper rates since we are not paying for the "free" phone. Was I misinformed?


Canceling out?
By 440sixpack on 4/12/2012 4:46:59 PM , Rating: 2
So I think for being out of my contract and due for an upgrade, Verizon has been offering me an extra $30 off a phone to upgrade. I'm assuming this +$30 will just cancel that out?




After years of being with Verizon
By 1ceTr0n on 4/12/2012 9:11:11 PM , Rating: 2
I so want the Samsung Galaxy Note bad enough that im' thinking of switching to AT@T just for the phone. I don't leave town much in my area and I don't use alot of data so I don't think the "lesser" coverage of AT@T will be an issue for me.

Verizon has been pretty good to me over the years but their phone selection honestly sucks hard and despite internet rumors, I doubt the Galaxy note will come to Verizon anyway and im sick of their prices increases and their "coverup" exscuses for them as "customer satisfaction costs"




No love
By dsquare86 on 4/12/2012 10:33:00 PM , Rating: 2
After 9 years with VZW, I am extremely fed up with a number of things. The $35 activation fee is my favorite. The looks I get whenever I go into the store to upgrade and demand the activation fee waived. For the life of me, I can't understand why it takes 4 hours to do a phone upgrade in store. As of late, I have seen quite the nose dive in customer service. I am tired of being told by one person that they are going to do something, only to call back and be told it was never done. I am never offered an explanation, only told that they know who it is but they are in a different call center. When my contract expires next year I have every intention of leaving. I have had an ass full of Verizon Wireless and their fees/prices.




T-Mobile?
By MABManZ on 4/13/2012 10:28:38 AM , Rating: 2
So I guess T-Mobile is no longer considered a "major US carrier"?

I'm wondering if US customers will ever wake up and stop paying to get bent over on cell phone contracts from these carriers. Here's hoping pre-paid and competitively priced services like Virgin Mobile, Straight Talk, and Simple Mobile can gain some momentum.




Language
By Kolf on 4/15/2012 2:49:45 PM , Rating: 2
This is not a "win-win." it is a win.




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