As T-Mobile Moves to End Smartphone Subsidies, Verizon CEO Says "Not so Fast"
January 7, 2013 3:36 PM
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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
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.
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1/7/2013 5:22:12 PM
I used to work at Verizon Wireless in a call center. While they do have a "customer retention" department to handle cancellations (was actually called LMS when I was there, "loyalty management services"), they certainly don't bend over backwards to keep you.
Now I don't know what carrier you were referring to, but it isn't Verizon. They won't just throw people several hundred dollar credits. They are the largest cell phone carrier in the country, their mentality is "go ahead and leave, you will be back", and honestly, that is probably true a fair amount of the time. They don't simply give hand outs to people threatening to leave, especially if the account in question wasn't generating much revenue in the first place.
"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA
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