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Verizon CEO says customers aren't ready to pay $700 for an iPhone

T-Mobile announced a surprising move back in early December to end carrier subsidies for smartphone customers. Instead of getting a discount on the phone upfront, customers would instead pay full price for the smartphone in exchange for lower pricing on voice/data plans each month.
However, Lowell McAdam, CEO of Verizon Communications, doesn't think that the model will work for its customer base (Verizon is the largest wireless subscriber in the United States). "It's very intriguing. Every carrier has thought about doing away with subsidies," said McAdam. But "I don't think U.S. consumers are ready to buy an iPhone for $700."

Verizon Communications CEO Lowell McAdam [Image Source: Bloomberg]
McAdam may indeed be right -- unlocked, contract-free 16GB, 32GB, and 64GB iPhone 5 smartphones sell for $649, $749, and $849 respectively. Those that choose the subsidized option (two-year contract) can get the phones for $199, $299, and $399 respectively. The psychological pain of paying so much upfront for a smartphone may be worse to many consumers than the slow and steady bleed that comes from paying the costs over the course of a two-year contract.
Customers may end up winning in the long run if they purchase a device full price upfront, go with discounted service plans AND decide to keep their phones for longer than the usual 2-year contract window. Those that stick to strict two-year upgrade cycles may not see much of an incentive in paying upfront.
The biggest losers, however, would likely be those that purchase a subsidized device with a two-year contract, and keep the phone well past two years while still paying the higher "subsidized contract" price for voice/data services.

Source: Reuters

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RE: what subsidy
By Chadder007 on 1/7/2013 4:29:42 PM , Rating: 3
Exactly, free money for them once the contract is expired.

RE: what subsidy
By neihrick1 on 1/7/2013 5:59:21 PM , Rating: 2
and if you do want to upgrade, now there is a $30 "upgrade fee".

RE: what subsidy
By Brandon Hill on 1/7/2013 6:08:01 PM , Rating: 2
AT&T tried to pull that crap on me when I upgraded my line and my wife's line over the summer. I called them up and they promptly credited my account $60.

RE: what subsidy
By BillyBatson on 1/7/2013 7:20:01 PM , Rating: 2
My friends and I did the same as soon as our bills came in after we upgraded to the iphone5 we called and asked to have the upgrade fee removed and were told it couldn't be removed but our accounts were credited the same amount. No excuse needed just 30 minutes of patience on the phone with at&t customer support....

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