Starting Aug. 13, when Verizon Wireless begins offering its new no-contract cellular data and phone packages to new and existing customers, the company will essentially be hoisting a white flag and giving up on the contract wars.
For Verizon, this is a huge concession. Firm in its belief for years that contracts are king, the company pushed back against rivals like T-Mobile that were tearing up customer contracts and letting their customers choose their services and their carrier relationships without limitations.
But on Aug. 7, Verizon announced it would resist no more. In a brief announcement, the company said that it will rid its customer relationships of contracts starting on Aug. 13, when users can begin to choose from no-contract services that will more closely match their wireless needs and lifestyles.
“T-Mobile has been carving an impressive swath in both AT&T and Verizon of late, and this is apparently their response,” Rob Enderle, principal of the Enderle Group, told eWEEK in an email reply. “Typically you look at a market like this and figure the big guys will drive the change. In this case it is T-Mobile and it is clear that if the big guys don’t change that T-Mobile may be the new big guy and Verizon and AT&T will be crying about what they once had.”
What likely drove Verizon to make the move to ditch contracts, wrote Enderle, is that “T-Mobile has been taking an impressive amount of business from them” by being aggressive, but the number of customers moving to T-Mobile still hasn’t been as high as it could be, he explained. “But these things tend to snowball and Verizon needed a better defense before this got a lot worse.”
Another huge worry for Verizon, said Enderle, are the recent reports that Apple is looking at offering its own mobile services as a Mobile Virtual Network Operator (MVNO), where it would resell cellular services it would buy from the major carriers. “A big concern for Verizon is the rumor that Apple may enter this space and Apple customers are really, really, loyal to Apple.”
Under its new contract-free mobile plans, Verizon said it will offer monthly packages that customers can customize, starting at $20 per smartphone per month plus a choice of four data packages ranging from $30 a month for 1GB of shareable data to $80 a month for 12GB of shareable data. A 3GB shareable data package is $45 a month, while a 6GB package is $60 a month. Unlimited talk and text are included with all of the packages and extra data can be purchased at $15 per GB. Monthly access charges for a tablet or Verizon Jetpack hotspot will be $10 per month.
Verizon will, at least for now, still offer two-year contracts for tablets and for existing customers who are on More Everything plans and want to keep them, a Verizon spokesman told eWEEK.
Gartner analyst Tuong Huy Nguyen said that Verizon’s move “certainly feels like the direction that the [major] companies are moving in.”
What’s still not known, however, is how Verizon’s decision will affect all of its customers, he said. “My guess is that no, it’s not cheaper, and that it’s making [prices] the same or even slightly higher.”
Ultimately, it means that consumers who are long accustomed to subsidized smartphone prices are going to see much higher initial price tags for their new devices and that they’ll be somewhat surprised to see “that the training wheels have come off , he said.
Here’s Why Verizon Dropped Contracts for Customers
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.”