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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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what subsidy
By menting on 1/7/2013 3:59:09 PM , Rating: 5
What subsidy?
They don't subsidize 1 cent.
You're paying for the phone yourself regardless. All they're doing is giving you a loan that you're paying back every month. And when you have fully paid for the phone, if you don't get a new one at the end of the 2 year period, you're basically giving them free money.




RE: what subsidy
By Rukkian on 1/7/2013 4:28:18 PM , Rating: 3
Verizon actually gets the phone paid off in less than a year, hence the fact they will pretty much subsidize a new phone for virtually anybody after 1 year if you break it. After that, you are getting screwed by their rates.

I really like what T-Mobile is doing, just wish their coverage were better. Would love to have the option to either deal with my phone, or take a small loan (which they actually do), or pay full price, and then getting significant discount on the plan itself.

My step mom has had her phone (now on our plan) for 7 years, and my mom (also on our family plan) has had hers for 4.5 years. Both of these would be much better off with a lower rate, but of course Verizon would never want that.


RE: what subsidy
By Mint on 1/7/2013 9:04:36 PM , Rating: 3
Which suggests that it actually is a subsidy, because anyone who doesn't replace/upgrade their phone every year or two is subsidizing those that do.

I also like what T-Mobile is doing. I'm on their Monthly4G plan, because I do as much calling on VOIP as I can and can live with the $30/month 100min/5GB plan. I know Verizon has better coverage and 4G speeds, but I'd have to pay ~over $800 more per year for that and I can't justify it.


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 (blog) 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....


RE: what subsidy
By CZroe on 1/7/2013 5:12:15 PM , Rating: 2
You obviously don't know what a "subsidy" is. Hint: Loans are "subsidized." The cost is in the monthly contract. They aren't mutually exclusive.

The manufacture gets the full price of the phone from the carrier just like a car dealer gets the full amount from the lender with a lien on a car. It was subsidized by the carrier with the contract and enforced with a hardware lock. A car loan contract is similarly enforced with a lien on the title.


RE: what subsidy
By menting on 1/7/2013 6:06:41 PM , Rating: 2
http://dictionary.reference.com/browse/subsidy
http://banking.about.com/b/2006/12/03/whats-a-subs...

A loan is only a subsidized loan IF you end up paying less than what it would cost with interest, which you cannot tell in this case because they hide it in the bill. And from T-mobile's bring your own device plans vs plans with "subsidized" phones, it's a $20 per month for smartphones. That means even over a 22 month period, it's a $440 difference, BEFORE the crazy tax you get charged for wireless plans. I'd say that's a pretty sure sign wireless companies don't subsidize anything for you, making the loan un-subsidized.


RE: what subsidy
By Mint on 1/7/2013 9:15:58 PM , Rating: 2
Except you forgot that after two years, my rate doesn't go down if I want to keep using the same phone; meanwhile, those that do choose to upgrade at that point pay $400+ less than retail to do so. That means I am subsidizing their purchase.


RE: what subsidy
By menting on 1/8/2013 8:32:41 AM , Rating: 2
oh you definitely are
I guess you're right then. It's a subsidized phone. But it's the consumer that's subsidizing the wireless company :)


RE: what subsidy
By CZroe on 1/8/2013 11:28:44 PM , Rating: 2
I didn't say who it was subsidized to. The device maker got the subsidy in exchange for your contract and the device maker locking it to their network.


RE: what subsidy
By kleinma on 1/7/2013 5:18:03 PM , Rating: 3
What exactly is the loan?

If you buy a phone at full price for say $800 and you want to use it on Verizon service, you pay $30 for data, plus whatever talk/text amount you require.

If you buy a phone at subsidized price for $200 with a contract, you pay $30 for data, plus whatever talk/text amount you require.

The early termination fee you pay for breaking your contract is to recoup the phone subsidy.

I fail to see how this is a loan when you are paying Verizon the same price for their service. If they had cheaper plans for non contract smart phones, then fine, but they don't.


RE: what subsidy
By menting on 1/7/2013 6:08:02 PM , Rating: 2
verizon not offering the option to give you a different price even if you bring your own phone. doesn't mean it's not a loan. It just means whether you want to get raped more or less.


RE: what subsidy
By Dr. Kenneth Noisewater on 1/8/2013 11:39:29 AM , Rating: 2
In the real world, the subsidized phone is not going to have the same low-cost plans as the unsubsidized phones. So the unsubsidized paygo plans can be say $20-30/mo for just the alacarte stuff you need, while the subsidized monthly plans start at $50 for non-unlimited and go up to $100 for unlimited, with required data plans as well. So if you're paying $30-70/mo more for services that you don't want or need (or can get on a paygo plan for less) then over 2 years you're overpaying $720-$1680 for that subsidy.

Another thing factoring into Verizon comments is that CDMA carriers don't use SIM cards (though perhaps with LTE this will change?) so switching phones is not as simple as just dropping your SIM into a new one.


Refund
By titanmiller on 1/7/2013 4:26:33 PM , Rating: 2
If you keep your phone past your contract all you have to do is ask and they will give you a several hundred dollar discount on your plan. My dad uses an 8 year old phone an always gets big money when it comes time to renew. Just ask!




RE: Refund
By Cheesew1z69 on 1/7/2013 4:45:59 PM , Rating: 2
Um, no, they won't...LOL


RE: Refund
By CZroe on 1/7/2013 5:06:27 PM , Rating: 2
Yes they will. It's called "customer retention."


RE: Refund
By kleinma on 1/7/2013 5:22:12 PM , Rating: 2
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.


RE: Refund
By Cheesew1z69 on 1/8/2013 11:25:55 AM , Rating: 2
Sorry but they aren't going to lower your bill by " hundreds of dollars " as he claims....


RE: Refund
By CZroe on 1/8/2013 11:30:01 PM , Rating: 2
Over the course of what might otherwise be a two-year agreement: YES THEY WILL.


RE: Refund
By KoolAidMan1 on 1/9/2013 1:25:06 AM , Rating: 1
How did you become such a stupid faggot? Did it take years of training or were you just born one?


Why not do both?
By Labotomizer on 1/7/2013 3:58:25 PM , Rating: 2
If Verizon finds this intriguing, offer both please! I don't mind paying full price up front (just bought my phone full price anyway) and I would LOVE exchanging that for a reduced monthly bill. I know that's not for everyone, and it may not be for the majority of users. But let me have the option. Give me a good monthly price off contract, or a really good price on a 2 year contract.




RE: Why not do both?
By vXv on 1/7/2013 5:20:04 PM , Rating: 2
That's how it works on the other side of the Atlantic i.e in Europe.
You can chose whether you want to get a phone from the carrier for a reduced price and pay higher rates or you buy the phone elsewhere and get lower rates (and the ability to cancel the contract at the end of every month if you wish).


RE: Why not do both?
By MadMan007 on 1/7/2013 6:45:08 PM , Rating: 4
Bunch of socialists with their customer-friendly ways of doing business!


RE: Why not do both?
By Dorkyman on 1/7/2013 8:21:02 PM , Rating: 2
AND if you're willing to go with a slightly-older generation phone you can get amazing deals on eBay or Craigslist. My Sprint Evo 4G goes for about $50-100 on eBay these days. I've bought a spare for parts in case I trash mine. Easy to disassemble.


RE: Why not do both?
By GotThumbs on 1/8/2013 10:18:07 AM , Rating: 2
They actually do.

If you already have a phone that was used on Verizon's CDMA network, you can use it contract free through Page-Plus. It's a pre-paid approach with no contract. Using Kitty Wireless, they will do the monthly renewal for me and simply bill my CC, so it's really just the same as when Verizon would charge my CC'd each month. Only no contract required. Just notify KW if you want to change plans or cancel service. I pay 30.00 Mo for 1200 minutes/3000 Txts/250MB data. I don't live on my phone, so this plan is more than enough for my needs.


LOL!!!!
By NellyFromMA on 1/7/2013 4:47:36 PM , Rating: 2
BIG SURPRISE! The CEO of Verizon, the absolute WORST carrier to be a consumer on if you care about using your VZ phone anywhere else, thinks consumers buying there phones is a bad policy?!

Here's the truth: Verizon is the single carrier who benefits THE MOST from carrier lock in. No other independant carrier operates with their techonology other than Sprint, and each company has an agreement no tto use phones from each others networks on the other network.

Basically, if you have a sprint or VZ phone, you are effed globally. So, VZ wants you to be stuck phone wise as well as contrac twise, therein nullifying ANY leverage a consumer may have in any conversation or dispute billing or service wise.

Cleverly, this absolutely nerfed sprint as being relevant in any way as a carrier while solidifying VZ's first place position. Next to no defectors is great for them.

This guy only gives a crap about his own monopoly, not consumers. As for his remark about the pricin gmodel being 'intriguing', thats the nice way of saying 'stfu don't ruin my situation'.

I'm so happy I switched from VZ to Straight Talk. Had to buy an S3 full price to do it (ok, didn't have to, but did so to spite VZ since our dispute was billing related) but since my bill is literally half and I do everything I did with VZ, I really couldn't be happier.

Bottom line: VZ doesn't want its consumers to feel like they CAN leave without paying huge subsidies. That's how their business model works. Uninformed and unable consumers are the cream of the crop for them.




RE: LOL!!!!
By retrospooty on 1/7/2013 5:49:40 PM , Rating: 1
Not that I am defending the crap Verizon does, but they do what they can do. They can, because is the US, they have the best service. Not in every single area, but overall, they are the best by far for coverage. They cost more and have more users, not becasue people are stupid, its because ATT, Spint nad T-Mo's service sucks.


RE: LOL!!!!
By Rukkian on 1/8/2013 10:16:05 AM , Rating: 2
I have actually been debating the same move as you, but have an issue with their contract saying no streaming allowed. Is it actually blocked, or do they just prefer you not do it?


RE: LOL!!!!
By erple2 on 2/3/2013 8:27:53 AM , Rating: 2
They discourage you from doing it. Basically, if you use too much data in too little a time frame, you will get a warning text or two about it. If you curtail usage then, no issues. Also, that's true if you go the att sim route. I don't know if that also is true for the T-Mobile route...


RE: LOL!!!!
By MZperX on 1/8/2013 12:09:51 PM , Rating: 2
I'm on StraightTalk since April of 2012 with a Samsung GS2, which I bought off contract brand new, and I'm saving about $1,500 over the two-year timeframe that the normal contract would be. I will never go back to the old model of signing away my life and being tied to the carrier. I even sold my old phone after I got the S2 and this way my total cost was around $280 ($430 - $150). Did I mention I get to keep an extra $750 dollars in my pocket each year? Yeah, it's awesome...


By froggystyle66 on 1/7/2013 4:22:27 PM , Rating: 4
Tablets contain virtually all the same internals save for the telephony abilities and cost half as much and sometimes even less. I'm pretty sure that if all phone carriers ended "subsidies" natural competition would drive the price of smartphones down anyways. Why would a Samsung GS33 cost more than a galaxy tab when the internals are similar and the screen is smaller???

It seems to me that the only reason phone manufacturers pay top dollar for these phones is so they can force people into 2 year contracts that more than pay for the phones.




By Brandon Hill (blog) on 1/7/2013 4:32:19 PM , Rating: 2
True. Google Nexus 4 is only $300 w/o contract I believe.


By CZroe on 1/7/2013 5:07:52 PM , Rating: 2
Not only that, but the last-gen phones will be even more affordable. People seem to only focus on the latest and most expensive when talking about the unsubsidized prices.


He'd be right IF
By esteinbr on 1/7/2013 6:07:38 PM , Rating: 3
He'd be right if T-mobile was actually asking people to pay 600$ for an iPhone. That would be a really hard sell to the general population. They aren't doing that tho. Just look at the way the value plan already is setup.

For a 600$ phone you can pay 600$ up front or 200$ down and 20$ a month for 20 months. Same total cost and the extra 20$ on the monthly bill just means that the monthly cost is similar to their classic plan cost or other carriers plans. The advantage is once that 20 months is done the 20$ a month drops off and you stop paying extra for the phone. Now if you upgrade your phone right away you probably aren't going to be saving much but if your phone is good enough for what you need 20$ a month for as long as you want to hold off upgrading is nothing to sneeze at.

You also have the option of going for a cheaper phone that has less upfront and/or monthly costs which may appeal to some people too.

Sure lots of people do upgrade right way but I'm sure to some extent it is because people know they are paying extra either way so they might as well get something out of it.




RE: He'd be right IF
By Mint on 1/8/2013 6:37:18 AM , Rating: 2
The interesting thing is that they seem to be keeping the Classic plans around for advertising purposes. They're simple and easy to compare to everyone else.

Once customers come to a T-Mobile store, they sweeten the deal with the Value plan, which is a little more complicated due to the math you explained in your post.

It's a good strategy, and while Verizon will always be able to charge more due to their coverage, I think AT&T and Sprint will at some point have to follow T-Mobile's lead.


Drop My Rate
By ebakke on 1/7/2013 3:55:24 PM , Rating: 2
The subsidy for the iPhones listed is $450 for a 24-month agreement (but 22 months before you're able to get another subsidy). Drop my rate by ~$20/mo per phone and I'll gladly pay full price for the phone.

Customers may not be ready to buy a $700 iPhone, but I suspect he's also not ready to lose the $20/mo for each customer that doesn't upgrade their phones immediately.




Similar to Month-to-month
By Sivar on 1/7/2013 5:12:19 PM , Rating: 2
The idea sounds not too dissimilar to T-Mobile's existing no-contract month-to-month plans. I pay $30/mo for my service as I use a smart phone from a now-expired 2-year contract.




By darckhart on 1/7/2013 7:02:13 PM , Rating: 2
hm last time i checked on all the carrier websites, you could never choose to pay full price for the phone. especially the big seller popular ones. nah uh ALWAYS tied to contract.




T-Mobile Has It Right
By dailytizzle on 1/7/2013 9:45:58 PM , Rating: 2
The quicker Verizon and AT&T and Sprint and the other post-paid carriers in the US pay for the up-front subsidy the more $$$ they make within the 2yr contract term. No one really knows except for the carriers when that occurs. I have read people online stating after 4-5 months the per month plan cost they charge effectively pays for the subsidy. The remaining months until you upgrade they bank.

T-Mobile is offering this because they are bleeding customers. This change is pro consumer. The other carriers don't like it because they make less $$$ as a result. Why do out think AT&T has gotten more stingy on early upgrades? Because it costs them profit to let customers upgrade sooner. I'm convinced the major 3 US carriers collude anyway on plan pricing.

Cheaper plans is what everyone wants. If AT&T offered cheaper plans like what T-Mobile is proposing I'd buy the phone full price at Best Buy and do the 0% interest for 18 months on it and decide when I want to pay it off within the 18 months. Plus I'd consider keeping the phone for at least a full 3yrs.




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