Verizon rules out service fee changes in new phone offer

Reuters News
Posted: Jul 18, 2013 1:06 PM
Verizon rules out service fee changes in new phone offer

By Sinead Carew

NEW YORK (Reuters) - Verizon Wireless will let customers upgrade cellphones more frequently if they pay for their devices in installments, but analysts expect few takers unless the leading wireless provider lowers monthly service fees as well.

Analysts said customers would effectively be paying for their smartphone twice under Verizon's plan and a similar offering announced by No. 2 U.S. mobile service provider AT&T Inc <T.N> on Tuesday.

"We will not touch our service pricing," Verizon Communications <VZ.N> Chief Financial Officer Fran Shammo said in an interview after the company's earnings conference call on Thursday.

He said the new Verizon Edge offer, to be launched on August 25, would not have an impact on Verizon's financial results.

Shammo said he does not expect a large percentage of Verizon customers to opt for Edge as most customers would still prefer to buy a new phone at a discount upfront and wait two years for an upgrade.

"You'd have to be out of your mind," to accept this new offer, Moffett Research analyst Craig Moffett said.

More frequent upgrades should mean more sales for phone makers including Apple Inc <AAPL.O> and Samsung Electronics Co <005930.KS>.

But "the plans Verizon and AT&T are talking about where they're cutting subsidies upfront without lowering the service price are unlikely to have any impact in the market whatsoever," he said.

Under Verizon's new plan, customers would pay for new phones over 24 months, but they can upgrade after 6 months as long as 50 percent of the device cost is paid up. Monthly service fees would remain.

Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc <VOD.L>, currently requires customers to commit to contracts in exchange for a sharp discount on the upfront price of their phone. Verizon pays an upfront subsidy to phone makers and recoups the cost gradually through the monthly service fees it charges customers.

Consumers who like to own the latest gadgets have been frustrated with this approach because it makes them wait at least 2 years for an upgrade. Carriers have recently been allowing upgrades less frequently in order to save on the subsidies, which tend to hurt their profit margins.

AT&T has also said that it would not change the service pricing under its new upgrade plan called AT&T Next.

However, T-Mobile US <TMUS.N>, the No. 4 U.S. wireless provider, cut service fees when it started offering phones without subsidies. Earlier this year it completely eliminated subsidies.

Shares of Verizon, which reported quarterly results on Thursday, fell 1.8 percent to $49.84 on the New York Stock Exchange.

(Reporting by Sinead Carew; Editing by Richard Chang)