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Verizon Sees End of Subsidies, Partners with Vodafone

By - Source: Bloomberg | B 11 comments

Verizon Wireless sees the end of smartphone subsidies in the near future. Meanwhile, parent company Verizon Communications is looking to end its relationship 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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  • 8 Hide
    xpeh , March 6, 2013 1:16 PM
    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.
  • 9 Hide
    catfishtx , March 6, 2013 1:33 PM
    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.
  • 2 Hide
    tntom , March 6, 2013 2:48 PM
    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'.

  • 0 Hide
    alextheblue , March 6, 2013 5:14 PM
    JacekRingI liked the part on how Verizon wants to switch to VOIP, using their 4G service. Consider that I don't get 4G in a lot of places here in PA, and they charge extra if you go over their 2 gb limit (I'm still grandfathered in the unlimited plan) that will bring in a lot of money to Verizon. As with VOIP will get you over that 2gb limit quick.
    Voice over LTE just means they'd no longer be requiring CDMA for voice. So they could sell you a phone with no CDMA, LTE-only, and you'd have access to voice and data as normal. You'll still use minutes for calls for the forseeable future unless you used a third party VOIP service yourself. So no real changes from the end-user's standpoint.

    The reason they haven't done this already is that their network won't be 100% LTE capable until early 2014 more than likely. As much as I dislike Verizon's prices, they've been very aggressive about rolling out LTE. I'm very much enjoying their LTE service at my house and around town, it has been very reliable and consistent.

    Down the road they could even reclaim some bandwidth by shutting CDMA off entirely, but this won't happen until even further down the road as it would render older phones useless and they'd have to hand out an awful lot of new phones. So they're going to wait on that until most of their customers have upgraded by choice or by necessity (damaged/inoperative phone).
  • 1 Hide
    Osmin , March 6, 2013 5:51 PM
    Lately AT&T and Verizon are on a quest to raise prices or reduce service. AT&T and Verizon ended their unlimited data plans. AT&T new Mobile share plans are more expensive than the regular family plans. Now watch the subsidies disappear as AT&T will follow suit and everyone will pay more for their services. Just think of the savings for the carriers when a family gets 5 typical iPhones or Samsung Galaxy Note 2 phones for ($600 x 5) $3,000 minus the deductable of ($200 x 5) $1,000 makes $2,000 in savings. Divide the savings by their 18 month early upgrade period ($2,000 / 18) and you get $111.11 per month savings. Let’s see if our monthly bill gets lowered by ($111.11 / 5) $22.22 per cell phone. The only reason most don’t flock from the duopoly, is that the other cheaper carriers have too many problems with dropped calls or dead zones. This may change over time but many like to stick with their reliable service and thus the duopoly can start charging more until they lose enough customers.
  • 0 Hide
    largg , March 6, 2013 7:01 PM
    My concern here is the MVNOs. If Verizon is successful at converting to voLTE and killing off CDMA, Sprint will follow suit. When that happens how does that effect the prepaid carriers like Boost, Virgin mobile and others? I would hate to see prepaid carriers forcing a significant rate hike because of voLTE.
  • 0 Hide
    steamroller16 , March 6, 2013 8:26 PM
    Quote:
    Let’s see if our monthly bill gets lowered by ($111.11 / 5) $22.22 per cell phone.


    I have a suspicion that the monthly bill won't get lowered at all. The subsidies will simply disappear and Verizon will pocket the rest. Then we'll be paying ~$600 for a smartphone (upfront or by some monthly installment) and the same $40 per month for service. Verizon sure has creative ways to increase the price.
  • 1 Hide
    sarcasm , March 6, 2013 8:50 PM
    "Verizon Said to be Seeking to Resolve Vodafone Venture" - Bloomberg

    "Verizon partners with Vodafone. Verizon Communications is looking to end its relationship with Vodafone."

    *Shakes head*
  • 0 Hide
    alkhrt , March 6, 2013 9:03 PM
    VZ floating out the no more subsidies is all about shifting the cost off of their books, and onto our backs. If you buy a "$650" smart phone for $200 on a 2yr contract, obviously they are fronting you the $450. How long does it take to cover that per subscriber? Who knows (VZ obviously, but not me). If it took 12-16 months that would mean VZ clears somewhere between 28-37 a month on you. They want that 28-37 a month in the black for the full 24 months, not just the last 8-12 months of the contract. They're not going to lower the monthly cost to you.

    The same is true for them dreaming of the day they can go all LTE. No 3g network to operate has the dual effect of saving them money (a good thing), and screwing all of the other carriers that aren't pure LTE. No 3g network, no 3g roaming agreements. Forces others to spend money. Eliminates competition - or has the potential to.




    VZ's not doing this to save you a penny. I'd be the same thing if they shut down 3g. It would save them money by not running parallel networks, and stick it to the other carriers because no operational 3g network means no 3g roaming agreements.
  • 0 Hide
    sykozis , March 6, 2013 9:46 PM
    I switched from a typical family plan where I was paying $120/month for 750mins, 250 texts and no data....to a plan where I pay $120/month for unlimited voice and texts and 1GB of data.... To reach that same plan under the previous pricing scheme, it would have cost me over $200/month. I'd say I'm saving money.... My in-laws were paying over $300/month....now they're paying $150/month. So, how are people paying more with Verizon's current pricing scheme compared to the former?

    I checked out Sprint....the service sucked and the prices sucked more. To get a similar plan from Verizon, using similar phones....would have cost me $150/month for 2 phones. Checked out nTelos (who claims to have the lowest price of all contract carriers). A similar plan from them would have cost me almost $180. Checked out T-Mobile....their coverage sucks and always has. Same story with them....higher prices for similar service....

    People can whine and complain about prices all they want....but all that matters is they pay for the service. As long as people are willing to pay the prices....there's no reason for the carriers to reduce their prices.
  • 0 Hide
    fordry06 , April 7, 2013 12:47 AM
    sykozisI switched from a typical family plan where I was paying $120/month for 750mins, 250 texts and no data....to a plan where I pay $120/month for unlimited voice and texts and 1GB of data.... To reach that same plan under the previous pricing scheme, it would have cost me over $200/month. I'd say I'm saving money.... My in-laws were paying over $300/month....now they're paying $150/month. So, how are people paying more with Verizon's current pricing scheme compared to the former?I checked out Sprint....the service sucked and the prices sucked more. To get a similar plan from Verizon, using similar phones....would have cost me $150/month for 2 phones. Checked out nTelos (who claims to have the lowest price of all contract carriers). A similar plan from them would have cost me almost $180. Checked out T-Mobile....their coverage sucks and always has. Same story with them....higher prices for similar service....People can whine and complain about prices all they want....but all that matters is they pay for the service. As long as people are willing to pay the prices....there's no reason for the carriers to reduce their prices.


    With prepaid stuff you can pay about half that for similar stuff. I assume 2 phones? With Straighttalk (who uses verizon's network as well as ATT and Tmobile) you can pay $45 a month for "unlimited" everything per line. You are getting a better deal, but you aren't saving money and you aren't getting the best deal.