Verizon, with Apple iPhone Near, Cancels Upgrade Incentives: Report
The Verizon iPhone has been called the mobile industry's worst-kept secret. The carrier's bigger surprise, it turns out, may be its plan to cancel its "New Every Two" program in advance of the Feb. 10 launch of its iPhone, the Wall Street Journal first reported Jan. 12.
The New Every Two program offers Verizon subscribers a credit of $30 to $100 toward the purchase of a new phone every two years. Beginning Jan. 16, Verizon will stop offering New Every Two, as well as its Annual Upgrade program, to new customers.
"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," wrote the Journal, adding that for the iPhone, "that's currently a difference of $400."
Verizon spokesperson Brenda Raney told eWEEK that "customers under contract prior to January 16, 2011 who meet the qualifications for New Every Two or Annual Upgrade will be grandfathered to use the benefit one more time." She added that "a simpler program" will replace Annual Upgrade and New Every Two, enabling customers who sign up for service on or after Jan. 16 to upgrade their devices after 10 months, with a one-year contract and after 20 months with a two-year contract.
Modeling from analysis firm Technology Business Research shows 3.4 million to 4.7 million AT&T subscribers will likely make the switch to Verizon in 2011, with 10 million to 12 million subscribers in total signing up for the Verizon iPhone.
"That means $3 billion to $5 billion in subsidies for Verizon, even without the New Every Two program," TBR analyst Ken Hyers told eWEEK. "So it makes sense that Verizon, and other operators that are selling more and more smartphones with their expensive subsidies, is looking to reduce its equipment costs where it can."
Sales of smartphones in 2010 were incredibly swift, increasing by nearly 90 percent over 2009's totals, according to research firm IDC.
"Increasingly, users look to smartphones as their next devices while carriers have broadened selection and offered generous subsidies," wrote IDC analyst Ramon Llamas in a Nov. 4 report. "To keep up with demand, vendors' plans to emphasize smartphones in their portfolios have resulted in sharp growth ..."
Carriers make up for the subsidies - which account for the difference in hundreds of dollars between the with-a-new-contract rate and without one - over the two years that a user pays service fees. Should the customer move on or upgrade before the terms of the contract are up, the carrier loses out.
"That point hit home for ... AT&T last year when it allowed subscribers to upgrade early - often even waiving its $18 processing fee - when the iPhone 4 was released on its network," Morningstar equity analyst Michael Hodel told the Journal. "Its profit margins shrunk considerably."
Verizon, however, is in a power position, poised to offer something that the market has been showing a years-long desire for. In September 2010 survey by Deloitte, nearly half of AT&T's iPhone owners said they would be interested in switching to Verizon, should it offer an iPhone. While in a May survey from ChangeWave on subscriber satisfaction with wireless carriers, 53 percent of Verizon customers - despite being the most satisfied customers in the industry - expressed interest in the one smartphone they didn't have access to.
"The survey results show an unprecedented level of pent-up demand for the iPhone among Verizon subscribers," reported ChangeWave. "If Verizon were ever to offer the iPhone, the evidence points to it having a profound and likely transformational impact on the industry."
Verizon, one suspects, is well aware of this.
"I think that Verizon has made a pretty accurate assessment that even without the New Every Two program they will have no problem signing up iPhone subscribers," said TBR's Hyers. " And I think that they may not want to spend the bulk of their equipment subsidies on existing customers who have benefited from previous subsidies already (remember that many of their current subs will want to upgrade early, to the iPhone)."
With other operators also ending early upgrade policies, he added, "I don't think Verizon will be negatively affected by ending these programs."
Regarding the change to the Verizon policies, Raney said she's "seen a lot of misinformation."
EDITOR'S NOTE: This story has been edited to include comments from Verizon Wireless.