Verizon CEO wouldn't mind if U.S. regulators ban phone subsidies

[EbookReader]

http://blogs.wsj.com/digits/2013/01/...ing-subsidies/

Could Verizon, AT&T Follow T-Mobile in Ending Subsidies?

Last month Deutsche Telekom AG's DTE.XE +0.57% T-Mobile USA said it would completely stop subsidizing phones in 2013, instead offering plans that essentially allow for interest-free financing.

“That is a great thing,” Verizon Communications Inc. VZ +0.88% Chief Executive Lowell McAdam said in an interview at the Consumer Electronics Show in Las Vegas. He joked that Verizon would support U.S. regulators in banning phone subsidies.

Although he likes the idea of ending subsidies, he questioned whether U.S. customers are ready for that type of shift because they have been conditioned to getting lower-cost phones for so long.

Verizon “could move to that very quickly” if people wanted it, he said.

AT&T T +0.45% Mobility Chief Executive Ralph de la Vega said Monday the company is watching the T-Mobile strategy, and AT&T could make a similar move if it becomes popular, but the company isn’t focused on the issue.

All the FCC has to do is mandate that all phone contracts will be split into two like it is done in Germany.

splitting the contract in two, so that one part of the monthly charge is explicitly paying off the handset, and the other representing the service charge.

[wxman2003]

Iwould not have a problem with that if the FCC added one more clause that all phones sold have to be unlocked and able to be used on any network in US, whether under contract or not.

[emma777]

So they are trying to be the pre-paid of post-paid. I think they saw how popular feature phones (like the iPhone) have been on Virgin, Boost, etc. and thought "we can do that."

The problem is, without subsidies you can't lock people into contracts. Customer holding is the key - so it will be exciting to see how this works for them.

[harcosparky]

Originally Posted by emma777

The problem is, without subsidies you can't lock people into contracts. Customer holding is the key - so it will be exciting to see how this works for them.

Sure you can, you just sell them the phone for $699 up front, and allow them to make payments on it over 24 months. After all that is more or less what T-Mobile is doing and what the consumers have been doing all along on other carriers. Consumers just are not smart enough at times to realize they are paying full price ++++ for the phone, even though it is 'subsidized'.


.

[maflynn]

If they did that I'd say it would have a chilling affect on the market, people would be less willing to upgrade to a new phone so quickly.

I also don't see why the FCC would step in and do that, I don't see the regulatory justification

[hafr]

Originally Posted by emma777

So they are trying to be the pre-paid of post-paid. I think they saw how popular feature phones (like the iPhone) have been on Virgin, Boost, etc. and thought "we can do that."

The problem is, without subsidies you can't lock people into contracts. Customer holding is the key - so it will be exciting to see how this works for them.

Of course you can. Just offer a deal that a customer finds attractive and they will gladly sign a contract.

If I said the cheapest "all unlimited" pre paid was 90 bucks a month, but if you signed a two year contract with me I could get you the same thing for 50 bucks a month - would you decline because I'm not offering a subsidised phone and charging 70 bucks a month?

[barkomatic]

Originally Posted by harcosparky

Sure you can, you just sell them the phone for $699 up front, and allow them to make payments on it over 24 months. After all that is more or less what T-Mobile is doing and what the consumers have been doing all along on other carriers. Consumers just are not smart enough at times to realize they are paying full price ++++ for the phone, even though it is 'subsidized'.


.

That's strange, my bill from AT&T is exactly the same whether I am under contract as a result of getting a subsidized phone or not. There is no additional cash outlay or payment--just a commitment for a service I need anyway.

I think those who would expect a cheaper cell phone bill from the major carriers for an unsubsidized purchase are being naive. If subsidies end, then you could expect an *additional* amount tacked onto your bill each month -- and since the carriers would now consider it a "loan" there would likely be interest.

[old-wiz]

Verizon would love it. They would keep charging the same prices but wouldn't have to pay for the phones. For the first 2 years you are paying off the phone, and then profits increase for the carriers. With no subsidies, the profits would be higher right off the bat.

An end to phone subsidies would NOT lower phone bills.

[EbookReader]

Originally Posted by barkomatic

I think those who would expect a cheaper cell phone bill from the major carriers for an unsubsidized purchase are being naive. If subsidies end, then you could expect an *additional* amount tacked onto your bill each month -- and since the carriers would now consider it a "loan" there would likely be interest.

Would you consider T-Mobile as a major carrier?

T-Mobile offer cheaper cell phone bill for an unsubsidized purchase.

[netdog]

Originally Posted by old-wiz

Verizon would love it. They would keep charging the same prices but wouldn't have to pay for the phones. For the first 2 years you are paying off the phone, and then profits increase for the carriers. With no subsidies, the profits would be higher right off the bat.

An end to phone subsidies would NOT lower phone bills.

Why on earth is mobile service so expensive in America?

[KPOM]

That would be bad news for Apple since right now carriers pay $100 more in subsidies than they do for competing Samsung phones. Either Apple would have to reduce its prices (and margins) or they would need to attempt to sell the phones for full price. They tried that in 2007 but quickly dropped that.

[SVTVenom]

Fine with me.

I'll just buy the phone discounted on Amazon and jump around with whatever carrier will give me the best deal whichever month because there's no way I'm signing a contract when I paid outright for the hardware.

Seems to me that if more people had the freedom to bounce around, it'll start a race to the bottom as companies try to keep customers that aren't restricted by termination fees from jumping ship to Company X offering the same service for $20 less.

[barkomatic]

Originally Posted by EbookReader

Would you consider T-Mobile as a major carrier?

T-Mobile offer cheaper cell phone bill for an unsubsidized purchase.

Not really. I consider Verizon and AT&T to be major carriers and they tend to follow each other's moves in the market. T-mobile and Sprint still offer unlimited data and it doesn't pressure AT&T or Verizon. Likewise, the fact that T-mobile ended subsidies but offers a cheaper bill in return will not add competitive pressure to the big guys.

They consider themselves "premium" networks--especially Verizon--and so would justify offering no subsidy and no discounted bill.

Come on now, most of us have dealt with AT&T and Verizon for several years now and we know that they don't *lower* prices. They may offer more or better service for a higher price -- but they don't lower prices.

[hafr]

Originally Posted by barkomatic

That's strange, my bill from AT&T is exactly the same whether I am under contract as a result of getting a subsidized phone or not. There is no additional cash outlay or payment--just a commitment for a service I need anyway.

I think those who would expect a cheaper cell phone bill from the major carriers for an unsubsidized purchase are being naive. If subsidies end, then you could expect an *additional* amount tacked onto your bill each month -- and since the carriers would now consider it a "loan" there would likely be interest.

Meaning everyone is paying for the subsidised phones, not only those getting them. Very socialistic of you Because I highly doubt anyone actually believes that the carriers are giving away phones without it being added to what you as a customer are paying for their services... At least after having considered how likely such a move would be.

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Originally Posted by old-wiz

Verizon would love it. They would keep charging the same prices but wouldn't have to pay for the phones. For the first 2 years you are paying off the phone, and then profits increase for the carriers. With no subsidies, the profits would be higher right off the bat.

An end to phone subsidies would NOT lower phone bills.

The end of phone subsidies (and the end of carrier locked phones) would mean price competition would be much more important in attracting customers. Ergo, lower bills.

[EbookReader]

Originally Posted by barkomatic

Not really. I consider Verizon and AT&T to be major carriers and they tend to follow each other's moves in the market. T-mobile and Sprint still offer unlimited data and it doesn't pressure AT&T or Verizon. Likewise, the fact that T-mobile ended subsidies but offers a cheaper bill in return will not add competitive pressure to the big guys.

They consider themselves "premium" networks--especially Verizon--and so would justify offering no subsidy and no discounted bill.

Come on now, most of us have dealt with AT&T and Verizon for several years now and we know that they don't *lower* prices. They may offer more or better service for a higher price -- but they don't lower prices.

So if T-Mobile has 42 million subscribers, would you consider it as a major carrier?

Or does T-Mobile need to reach the 100 million mark to be counted?

[BigMcGuire]

Originally Posted by netdog

Why on earth is mobile service so expensive in America?

EXACTLY. I went to Peru and about crapped my pants seeing how cheap cellphones are there. Quite a few people have 2 cellphones just because of the price!

The best explanation I've heard so far comes from a friend who thinks it's because of the great land distance in the USA - the cost of providing wireless service to huge amounts of land. Makes sense but I still think there are other factors (charging high price because of little competition and because they can).

I'm all for unsubsidized phones. People will treat their phones better. Should make switching carriers easier. Seems like a win to me.

[barkomatic]

Originally Posted by hafr

Meaning everyone is paying for the subsidised phones, not only those getting them. Very socialistic of you Because I highly doubt anyone actually believes that the carriers are giving away phones without it being added to what you as a customer are paying for their services... At least after having considered how likely such a move would be.

That could very well be true -- definitely not saying you are wrong about that. I'm just a pessimist about this, and I think that the other carriers will simply maintain the current price points for their plans *regardless* of whether the subsidy ends. In other words, it will be a price hike if the bill remains the same and the subsidy ends. That's the most likely scenario in my opinion.

----------

Originally Posted by hafr

The end of phone subsidies (and the end of carrier locked phones) would mean price competition would be much more important in attracting customers. Ergo, lower bills.

It would still be a pain to jump from one carrier to another. Currently, Sprint, AT&T and Verizon phones can't run on each others networks -- at least not at optimal speeds. To get the best service, you'd have to sell your previous phone at a loss and buy a new phone at full price on your chosen carrier.

Originally Posted by EbookReader

So if T-Mobile has 42 million subscribers, would you consider it as a major carrier?

Or does T-Mobile need to reach the 100 million mark to be counted?

I'm not saying T-Mobile isn't a good carrier with good service in some places -- but Verizon and AT&T are on a different level and call the shots. The other carriers *need* to offer extra incentives to get customers -- while Verizon and AT&T have more freedom to raise prices without losing subscribers. They don't technically collude or meet to fix prices--they don't have to. Neither Verizon nor AT&T could end their phone subsidy without the other following suit fairly soon. You saw it with the end of unlimited data and you'll see it with phone subsidies as well.

[hafr]

Originally Posted by barkomatic

It would still be a pain to jump from one carrier to another. Currently, Sprint, AT&T and Verizon phones can't run on each others networks -- at least not at optimal speeds. To get the best service, you'd have to sell your previous phone at a loss and buy a new phone at full price on your chosen carrier.

Oh yeah, I completely forgot about that... Well, how about this then: the sale of CDMA+GSM-phones will increase dramatically in comparison to only GSM or only CDMA and in a few years (when most people have switched phones "naturally" the competition will be (on its way to become) like most places in Europe today?

Or is the difference larger than just CDMA/GSM?

[Ericcc]

Originally Posted by barkomatic

It would still be a pain to jump from one carrier to another. Currently, Sprint, AT&T and Verizon phones can't run on each others networks -- at least not at optimal speeds. To get the best service, you'd have to sell your previous phone at a loss and buy a new phone at full price on your chosen carrier.

That's the issue right there in the States, and why carriers wouldn't mind ending subsidies. It doesn't augment the customer's ability to switch carriers.

[Mrbobb]

Well NOW that pre-paid competitors are knocking the doors, do Mr. CEO finally say subsidies are bad. Yeah right.

[Diseal3]

As most people have said, monthly bill prices will certainly not change one bit.

[JayLenochiniMac]

Verizon CEO also wouldn't mind if they ban unlimited data either.

[thekev]

Originally Posted by BigMcGuire

EXACTLY. I went to Peru and about crapped my pants seeing how cheap cellphones are there. Quite a few people have 2 cellphones just because of the price!

The best explanation I've heard so far comes from a friend who thinks it's because of the great land distance in the USA - the cost of providing wireless service to huge amounts of land. Makes sense but I still think there are other factors (charging high price because of little competition and because they can).

I'm all for unsubsidized phones. People will treat their phones better. Should make switching carriers easier. Seems like a win to me.

Banning phone subsidies wouldn't change anything really. If more desirable phones infiltrate lower price points and companies with stable networks offer plans with lower monthly options and no subsidies, you'll see things change. I wouldn't mind if carrier locking was banned.

[corvus32]

And so, it has begun.

Walmart and Straight Talk Wireless are now carrying the iPhone 5, offering a $45 unlimited talk, text and data plan with no contract.

[old-wiz]

Originally Posted by netdog

Why on earth is mobile service so expensive in America?

The carriers have Congress and the FCC in their pockets - they make lots of "gifts" to politicians and regulators. In most countries it;'s called bribes. The "subsidy" for new phones is part of the game.