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Verizon CFO Thinks There Is Too Much Risk In Abandoning Subsidies

March 10, 2014 - Written By Cory McNutt

Verizon has always marched to the beat of a different drummer.  I guess when you own the best network, taken as a whole across the U.S., you can march to whatever song you desire.  My biggest complaint is do they have to do it with the smugness of an aristocrat and continually look down their nose at their ‘helpless’ subjects?  Just a little bit of appreciation would go a long way in the customer relations department.  When CFO Fran Shammo said, speaking at a Deutsche Bank technology conference, he pretty much said that they are happy to let T-Mobile and AT&T battle it out while Verizon continues business as usual.   Shammo summed it up with Verizon’s long-standing belief – “We’re not going to buy customers.  You have to earn customers.”

Shammo believes that the price-cut wars will hurt the industry in the long-term, much like the price wars for long-distant phone services that took place years ago.  Verizon still has room to grow financially without cutting prices, as he noted that half of its customers still use non-smartphones or only a 3G device and as those customers up their devices to the 4G LTE smartphones, so will Verizon’s profits go up.

Even though Verizon ‘caved in” and offered their Verizon Edge program for early upgrades, that is another area that concerns Shammo and the reason they are limiting its acceptance to high credit worthy customers and why he expects the subsidized plan is still their best bet.  He said:

“We believe that the subsidy model is an extremely good model.  It has done wonders for us in this industry.  So I think to abandon that I think is a mistake.  But I do think that there are customers out there that want that installment sale…There is a lot of risk with the installment sale.  We’re going to take a very conservative approach here.”

The installment plans can lead to problems when a customer realizes how much more their monthly bill will increase with the additional monthly device payment.  Rather than pay off the lump sum due on the device, the customer will just turn it in and if they leave, the chances of paying back their early termination fee (ETF) is very unlikely.  The carrier just cannot win in those situations. Shammo thinks that Verizon will continue to prosper as they release more spectrum for VoLTE, voice over the LTE network that will open up new opportunities in video conferencing, as well as expanding video services with deals like the one they are working on with Netflix and other pay-per-view options. So from the sounds of it, Verizon believes that their current way of doing business is just fine – the company continues to make money, so why should they reduce prices – they feel they have “earned” your business.