Verizon Gets Much More Competitive Pricewise With "More Everything"
February 14, 2014 9:44 AM
Verizon is roughly $18-28 USD/month more expensive than T-Mo for 6-Mo. upgrades; $8 USD/month more for 2-yr. plan
Verizon Wireless is changing gears after Verizon Inc.'s (
$130B USD Sept. 2013 buyout
of minority owner Vodafone Group plc (
). At the end of 2013 Verizon's had the highest average revenue per user (ARPU), something which both pleased and troubled analysts. While having the industry's highest cell phone bills is good for Verizon's earnings in the short-term
analysts were quick to express concern that the lack of discounts could backfire
I. As Expected, Price Cuts Cometh
Craig Moffett, head analyst at MoffettNathanson Research, says that may no easy task, commenting in a research note:
There is a price differential where -- well, where even satisfied customers will declare enough is enough. The only question that remains is whether we have already crossed it. They are vulnerable precisely because they have been so successful.
Jonathan Chaplin, an analyst with New Street Research, echoes in a separate note:
We expect rising competitive intensity to create a headwind for growth in 2014. We don’t think Verizon is out of the woods. We believe competitive pressure is still coming.
This week Verizon finally acknowledged that it would need to cut prices in order to retain its dominant position.
It unveiled a new plan dubbed "
One major impact of the new policy is that it makes Verizon's early upgrade plans much more competitive, particularly for those who have multiple smartphones on a large (>= 10 GB) family pool.
How does this work? To answer that we have to first look at how the plans stacked up last year.
II. Early Upgrades and 2-Year Contracts -- Last Year Was a T-Mobile USA Blowout
last year examined the price of early upgrade plans versus standard contract plans. They compared AT&T, Inc.'s (
Next early upgrade program
and Deutsche Telekom AG (
T-Mobile USA's Jump program
(the first of the early upgrade plans).
What they found was that the T-Mobile USA by far was the cheapest plan at 2 GB of data per month, with unlimited calling and texting. The cheapest rival contract plan (with no early upgrade) was Verizon's, which cost $435 USD per month more, thanks to higher monthly bills ($60 USD/month for T-Mobile versus $100 USD/month on Verizon).
In terms of early upgrade plans
T-Mobile USA's "Jump" plan
also the most affordable
. With the $10 USD/month ($240 USD per 24 months) extra fee, you'd still be paying about $200 USD less than you would for a 2 year contract on Verizon. And of course you're getting four new devices every years (trading in the old one, each time) versus only one on Verizon, and if you want to you can drop the service at any time (you're still on the hook for the device payments, but you can defray those by reselling your device and you won't be paying the early termination fees you would on Verizon).
For those wanting to upgrade, the Verizon $0 USD down "Edge" plan ended up costing about $370 USD extra per two years. So Verizon was basically making money off anyone who wanted early upgrades. Verizon also offered 6-month upgrades. That bumped things up even more to a ~$695 USD premium, as you must have paid off 50% of the device's total costs to upgrade.
So for six-month upgrades on Verizon you were paying roughly $900 USD more on Verizon over two years than on T-Mobile. That's about $38 USD per month extra.
Is Verizon's coverage advantage over T-Mobile worth $38+ USD per month? That's debatable, but one thing's for sure -- AT&T's Next deal is worse. AT&T's Next is even more expensive than Verizon and AT&T doesn't have as good coverage.
AT&T's 3 GB tier (AT&T doesn't have a 2 GB tier) costs around $480 USD more than Verizon for a 2 year contract, and roughly $920 USD more than a two year upgrade cycle on T-Mobile.
Adding "Next" will tack on nearly $500 USD more to your contract over two years. So AT&T's 1-year upgrade cycle over the standard 2-year period is about $610 USD more than Verizon's 1 year upgrade cycle, $260 USD more expensive than Verizon's 6-month upgrade cycle, and a miserable $1,175 USD more than T-Mobile's 6-month upgrade schedule.
Granted, AT&T has
the fastest LTE
(when available), plus you do get an extra gigabyte of data a month and somewhat better LTE coverage than T-Mobile. But for that you're stuck in a contract, get half as many devices as T-Mobile, and are paying nearly $49 USD per month more.
In short, Verizon and AT&T's early upgrade plans both offered some unique perks last year, but were much more expensive ($35-50 USD/month) than T-Mobile. A final thing worth noting is that AT&T did
step up its own pricing game
in Dec. 2013, bringing its Next plan's base pricing more in line with Verizon Edge.
III. "More Everything" Helps Verizon Blow Away AT&T's Lofty Prices, Compete With T-Mobile
Now, we get to the current question -- does "More Everything" make "Edge" a better deal than it was last year?
Verizon's new "More Everything" plan makes its "Edge" early upgrade plan a bit more competitive. For those at the lowest data tier (250 MB) you get $15 USD off your monthly fee for smartphones. For the majority of users who are in the 1-8 GB tiers (most customers), you'll get $10 USD off your monthly fee. For those on plans with 10 GB or up (including pooled family data plans), you'll chop $20 USD off your fee.
That's a pretty nice improvement. For users on smaller data pools you'll save $240 USD over two years, cutting the premium over T-Mobile USA down to around $28 USD. For those on large family pools you'll cut it even further to around $18 USD per month.
At $18 USD per month extra, you start entering the territory that Verizon doesn't even need misleading pricing to get customers to choose it over T-Mobile USA -- some customers would consider its coverage and speed advantage worth that months, even if you are bound by a contract.
Verizon leads in the LTE race. [Image Source: Verizon Wireless]
"More Everything" does not, however, eliminate some of the annoyances of "Edge". For example you have to buy a new device, you can't bring your own like you could on T-Mobile or AT&T.
But what about customers who don't want to upgrade every 6 months? For those willing to endure 2-year contracts there's also price breaks. Individuals on 500MB, 1GB, or 2GB (most customers) get $10 USD off their bills. Unlike the early upgrade pricing, there's no discount bump at 250 MB, though -- those customers get only $5 USD off their monthly bill. Likewise those with basic phones (non-smartphones) get $5 USD off a month.
Most customers will seem a modest price cut on their monthly bill with the rollout of "More Everything". [Image Source: PC World]
So over a two-year contract budget buyers will save $120, while regular customers will save $240 USD. That means that T-Mobile USA (contract-free) individual customers who operate on a voluntary two-year upgrade cycle will now only be saving under $200 USD per two years, or about $8 USD a month.
In this case, the math works out even more favorable for Verizon -- $8 USD/month more for significantly better coverage (albeit with a contract)? That seems an increase most customers would be willing to go for.
IV. "More..." Perks Sweeten the Deal
There's also other perks Verizon has added for More Everything subscribers:
Verizon has bumped its data allotments and given other nice perks. [Image Source: Hoovers]
Data Plan Bumps
Automatic for existing customers and new customers alike
$40 USD/month tier
$50 USD/month tier
$60 USD/month tier
Free (was 5 GB free or $3 USD/month/line for 25 GB per line before)
25 GB per line (up to 250 GB max on 10 lines)
International messaging (SMS)
Parental mobile device management software
free for 3 months, $5 USD/month after that
Cheaper long distance
$0.01/minute to Canada and Mexico
$0.05/minute to many other countries in Latin America and the Caribbean
free for 3 months, $5 USD/month after that
Verizon -- the nation's largest carrier -- is offering plenty of value when it comes to customers who want to upgrade every two years. And for those who want 6-month upgrades, it still trails T-Mobile a bit, but has made it close enough -- particularly on large family data pools -- that it can justify its pricing somewhat.
V. A Thriving, Competitive Market
In this regard it's a big step forward.
Given that Verizon
beat T-Mobile USA in new subscriptions
last quarter (narrowly), this could pressure T-Mobile USA to make further cost cuts. T-Mobile USA is profitable, so it can afford a bit of cutting.
And the pressure is really on AT&T which is looking ridiculous compared to both Verizon and T-Mobile now with regards to pricing. Likewise Sprint Corp. (
) -- who doesn't offer early upgrades anymore, but does offer competitively priced
"Framily" pools with unlimited data
-- may feel some pricing pressure, given it own poor 4G coverage in many regions.
T-Mobile has pushed all the carriers to get more aggressive pricing-wise and move away from contracts and subsidies.
All of this is good news for consumers. And yet again this justifies why mild anti-collusion regulation is necessary to maintain a competitive and free market.
Look at AT&T's pricing (right now, pretty much the worse out there) and ask yourselves:
had AT&T been allowed to merge with T-Mobile USA
, would T-Mobile USA be offering the prices it does today and would Verizon feel compelled to put this much pricing pressure on everyone, as well?
"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings
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