YOU'D HAVE TO BE LIVING in a cave to have
missed the big Tuesday news that the iPhone is
finally coming to Verizon ( VZ: 35.48*, +0.12,
+0.33% ) . But what the company didn't
announce yesterday may turn out to be more
important to subscribers: A change in the
company's upgrade policies that will make
phones more expensive for current and future
Verizon customers.
Verizon officials have refused to confirm or deny
the changes, but Verizon sales reps at a number
of stores around the country contacted by
SmartMoney confirmed what has been rumored
for the last week on various tech blogs : The
company is ending its popular "New Every Two"
program, which offers Verizon subscribers a
credit of $30 to $100 toward a new phone every
two years. As of Jan. 16, the company will stop
offering the credit to new customers and won't
re-enroll current customers in the program after
their next New Every Two upgrade. The cell
carrier is also putting the brakes on its permissive
early upgrade policy, store representatives
confirmed.
All of this adds up to more out-of-pocket costs
for Verizon customers. With the New Every Two
perk, a longtime customer with a $100 credit
could get the iPhone4 for $99.99 – half off its
new-subscriber price of $199.99. When the
program ends, new subscribers will no longer be
eligible for those discounts. Existing customers
will lose the perk when they renew their contracts
(unless they renew before Jan. 16 —but that date
is well before iPhone orders will be taken). And
with the end of the early upgrade program,
customers who were previously eligible for
discounted phones as early as 13 months into a
two-year contract will now have to wait 20
months to get a new phone at the promotional
new-customer price instead of retail (for the
iPhone, that's currently a difference of $400).
The move comes as millions of cell customers
are expected to jump to Verizon, now that the
company has the highly-sought iPhone4. And
none of them will be able to squeeze in before the
company changes its policies, because the iPhone
won't be available for new customers until Feb.
10. If Apple ( AAPL: 343.59*, +1.95, +0.57% )
keeps its current new-phone release habits,
customers who sign a new Verizon contract in
February will be locked out of preferred pricing
for later models until three months after Apple
releases a new model in July 2012.
Verizon's motives in the change are obvious,
analysts say: Every time a customer upgrades his
phone at a discount, there's a significant cost to
the company. As of now, carriers lose money on
every discounted handset, but make it up with
income from a two-year contract. (That subsidy
is why a new 16GB iPhone 4 costs $199 with a
contract and $599 retail.) By forcing consumers
to wait to upgrade – or pay more to do it – the
company cuts its losses, without losing any
income from the contracts. "The longer you can
get customers to go between upgrading their
phones, the stronger the profitability for the
carrier," says Michael Hodel, an equity analyst
covering Verizon for Morningstar. That point hit
home for Verizon rival AT&T ( T: 28.17*, +0.26,
+0.93% ) last year when it allowed subscribers
to upgrade early—often even waiving its $18
processing fee--when the iPhone4 was released
on its network. Its profit margins shrunk
considerably, says Hodel.
That's true for every other cell carrier as well,
because most offer their own discounts and early
upgrades. And as they roll out their own 4G
networks and accumulate more smartphone
subscribers, they're also likely get more stingy
with upgrades, says Neil Strother, an analyst for
ABI Research. That perk-tightening comes on top
of extra fees and higher early exit charges. Sprint
(S), for example, already tacks on an extra $10
monthly surcharge for 4G-capable handsets.
Carriers have also doubled their early termination
fees, charging up to $350 for smartphones, as a
way to recoup money on the phone and contract
revenue if you defect, says Andrew Eisner, the
director of content for Retrevo.com .
Verizon is well positioned to be the first to adjust
its upgrade program, Hodel says, because of its
status —it's one of the largest carriers and has
built a brand around its service, not a single
device. And in general, cell carriers and analysts
expect customers to accept the growing costs
without much of a fight. Consumers have already
proven they're rabid for the the latest and greatest
device —and are willing to pay extra to get it. The
week after Apple's announced its iPhone 4 in
June, 2010, gadget trade-in site Gazelle.com
saw a 5,900% increase in people seeking buyers
for their soon-to-be-old iPhone, a trend that
slowed but continued steadily over the next
month when the phone hit stores.
One bright side, industry-watchers say
consumers can expect the Verizon iPhone to spur
more competition, which ought to improve
networks – and pricing. "The four national
carriers are all fighting for the smartphone crowd
in some way," says Ken Dulaney, an analyst with
Gartner Research. What customers lose in
discounted upgrades, they might gain with
different pricing plans or faster networks.
(Without the iPhone, Sprint and T-Mobile are likely
to focus their pitches on network speeds and
Android phones.) For example, AT&T is already
touting its iPhone's capability to handle voice and
data simultaneously (Verizon's can't) —and the
fact that its version of the handset costs a full 99-
cents less.
Source: Http://www.smartmoney.com/spending/technology/verizon-ends-new-every-two-and-early-upgrades-1294852427732/
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