Verizon Sees End of Subsidies, Partners with Vodafone

Verizon Communications CFO Fran Shammo said this week during the Deutsche Bank 2013 Media, Internet & Telecom Conference that emerging platforms like BlackBerry 10, Firefox OS and Tizen will lead to more competition and lower smartphone prices. This in turn will reduce subsidy costs for carriers.

"I'm a believer that over the next two to three years subsidies will start to decrease just because of the ecosystems," he said. What's more, as Verizon migrates to Voice over LTE technology sometime between the end of 2013 and the start of 2014, smartphones will be offered without CDMA chipsets, thus reducing subsidy costs even more.

Shammo said that subsidy costs are a big part of Verizon's expenses, and that the model has "prevailed" in the U.S. market over the last 12 years. Margins are typically decreased when carriers sell a large amount of smartphones because of the higher subsidy costs they bring.

Over the weekend, news surfaced that rival carrier T-Mobile planned to move to a no-contract model on March 24 that will eliminate subsidies and early termination fees. The company will reportedly offer a monthly installment plan on smartphone purchases ranging between $25 and $30 USD. The new model is supposedly part of the "in your face" campaign CEO John Legere teased back in December, which is scheduled to launch after the MetroPCS merger in 2013.

Speaking of mergers, there's talk that Verizon Communications is looking to end its relationship with European partner Vodafone Group either by way of a buyout or a complete merger. Both parties were talking up a "full combination" as recently as December, but stumbled over disagreements on leadership and headquarters location.

Vodafone currently controls a 45-percent stake in Verizon Wireless that's reportedly worth $115 billion. Insiders claim that a complete buyout or a partial sale will likely be the outcome instead of a full merger, as New York-based Verizon is looking to take full control of its wireless carrier division by the end of 2013. So far no formal discussions of a merger are currently under way.

The venture between the two companies began when Verizon Communications was still named as Bell Atlantic Corp. during the Clinton administration. Both Bell Atlantic and Vodafone's U.S.-based branch agreed to merge their mobile units in September 1999, thus resulting in Verizon Wireless (and the debut of the "Verizon" name) which launched in the following year.

One recent merger scenario discussed between the two companies saw a new headquarters established in the U.K. led by Verizon CEO Lowell McAdam. Verizon shareholders would hold 55-percent to 60-percent of the merged company's equity, sources said. But that plan died because of Verizon's resistance in migrating to Europe, and Vodafone CEO Vittorio Colao's reluctance to step aside.

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  • xpeh
    So the title states the Verizon partners with Vodafone, but the description states that it's looking to end that partnership? Wow, that was quick.
  • catfishtx
    The end of subsidies, and their resulting two-year contracts, is good ONLY if the carriers lower their price on service. You might as well get a subsidized phone if it is not going to save you money month-to-month. That at least saves you money up front.

    If carriers still want to lock you up for two years, they should discount their service for that term, that way there is at least a monetary reason to enter into a contract.
  • tntom
    Verizon only pursues strategies that slowly and subtly migrate consumers to pay more money. Verizon will never lower the cost of their service by the amount of the subsidy. They will lower it enough to create the perception that consumers are saving money month-to-month. If they just straight up raised prices, consumers would would be outraged but instead they allow for one little caveat where a small group of customers will save money, so they can justify their higher prices.

    Just like they still claim 'the majority' of their customers save money on their family share plans. I am surprised they didn't deceptively call them 'Share and Save Plans'.