Here's Why Verizon Dropped Contracts for Customers

By Todd R. Weiss  |  Posted 2015-08-10 Print this article Print
Verizon drops contracts

Another analyst, Avi Greengart of Current Analysis, told eWEEK that "T-Mobile is the big instigator here" because it moved away from contracts several years ago and got a good response from consumers.

One complication for Verizon is that because it uses a CDMA network, the vast majority of customers will have to buy their phones from Verizon since few unlocked phone are available for CDMA networks, said Greengart. Only two unlocked phones that can be purchased today, Apple's iPhone and the Google Nexus 6, will run on CDMA networks. That could change in the future however, as Verizon makes no-contract relationships a reality, he added.

Verizon is essentially "copying" T-Mobile's no-contract moves because it has been working for T-Mobile, said Greengart. "Based on what I've seen, Verizon isn't going to lose money but they really did radically simplify things. It is actually pretty straightforward, and it is impressive since Verizon has not been known for this in the past."

For consumers, the new Verizon no-contract packages will also mean that buyers will want to pay more to the residual values of their next phones because some devices, like Apple's iPhones, have much more value on the resale market than other phones, said Greengart. That means that even if users buy more expensive phones and pay full price without a contract, they will likely get more when they want to resell it later, he said.

"People didn't think of this before, but they may start thinking about that if they are going to buy the phone outright," he said.

Jan Dawson, chief analyst for Jackdaw Research, told eWEEK that he is surprised it took Verizon so long to reach its decision to end most contracts. "This is very much the direction the industry is going in, but AT&T, Sprint, and Verizon have been going at it fairly slowly, and Verizon was the last to get on the bandwagon," he wrote.

Another analyst, Patrick Moorhead of Moor Insights & Strategy, said that with this move, "Verizon is getting with the times," long after T-Mobile and even AT&T made the shifts.

For T-Mobile, they had nothing to lose when they dropped contracts, said Moorhead, because at the time they were the number four U.S. carrier in the top four.

"People are a lot more savvy today," he said. "A younger crowd is looking for more choices, less lock-in and looking for more ala carte services," said Moorhead. "There's a big generational thing, whether it's the Baby Boomers or the Millennials. The younger users are looking for more granular offerings that are of use to them in everything from music to video, to cars and smartphone plans."

In the future, Verizon has to stop always following trends like this one and needs to find a niche where the company can finally lead the market instead of react like it has by dropping contracts, said Moorhead.

"Verizon needs to think of what they can be first with," he said. "[This current pattern] is eroding their brand."


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