The days of subsidies might not end anytime soon, even though the latest moves from AT&T and T-Mobile are pushing the market in that direction. Instead of customers buying their handset at a discount, carriers have started to offer smartphones in installment plans, adding an extra monthly cost on top of the usual plan of minutes, data and text. Verizon CFO, Fran Shammo, still believes a subsidy is the superior option.
Speaking at the Deutsche Bank media conference, Shammo argued that the subsidy model has “done wonders” for Verizon in particular, and abandoning it would be a mistake. Verizon actually offers Edge and More Everything plans, but largely due to demand, not because it wants to ultimately ditch subsidies altogether.
Shammo said the carrier wants consumers to decide which option is right for them, and won’t force “customers into anything.” The subtext here is that Verizon isn’t quite sure how deeply it wants to go down the rabbit hole; Shammo admitted the carrier is “taking a conservative approach.”
One of the unintended effects of ditching a subsidy model, Shammo points out, is the concern for a device’s residual value going down because so many people will have the option to trade-in their device after just a handful of months. Additionally, Shammo noted that the expensive early upgrade plans can shock customers who decide to leave before their device is paid off in full.
“It’s going to be a very dissatisfying thing for the customer at the end of the day if they feel that they want to leave and they end up with a very large bill,” Shammo said. “If you look at history between the early termination fee and installment sale… when customers leave your network for dissatisfaction the likelihood of them paying you your early termination fee is probably next to nil.”
Verizon is still the largest wireless carrier in the U.S., but the focus has quickly shifted away from the traditional subsidy model. It seems to be working well for T-Mobile thus far. Of course, with such an enormous subscriber base, Verizon is content to take a conservative approach.