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Verizon (VZ) Dumps 2-Year Contracts, Upgrades Fee to $30
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According to a recent report by FierceWireless, U.S. telecom behemoth Verizon Communications Inc. (VZ - Free Report) announced its plans to put an end to the two-year service contracts for both its new and existing customers. The company further made it mandatory for all customers to sign up for its equipment installment plans (EIPs).
The upgrade fee, which was introduced last year at $20 for device payment plans or full retail purchases, is now $30. Additionally, the $40 upgrade fee for those buying phones on a 2-year contract no longer exists. The changes were made effective on Jan 5.
However, several analysts believe that the main motive of Verizon behind the hike in upgradation fees is to enjoy some profits in the New Year.
This is not the first time that Verizon has forged ahead with such dumping plans. In Aug 2015, Verizon had made a similar discontinuance of service contracts to new customers and offered them to only those existing customers who wanted to use the plans.
T-Mobile US (TMUS - Free Report) was the first wireless carrier to introduce EIPs in early 2013 and dumped service contracts. The plan has since then been launched by all the major carriers of the nation. The strategy, however, was in favor of T-Mobile US and has helped it grow its lucrative base of postpaid subscribers during each of the first three quarters of the year. Henceforth, other U.S. wireless carriers also started following this trend of shifting from subsidized handsets and contracts to postpaid users.
On Dec 30, 2015, another U.S. wireless carrier AT&T Inc. (T - Free Report) confirmed its decision to stop offering two-year contracts to its consumers, effective Jan 8, 2016. As per the stoppage, both new and existing customers had to either buy a new phone at full retail price or through its EIP –– AT&T Next.
Sprint Corp. (S - Free Report) also joined the rest of the tier-one U.S. carriers from Jan 8, 2016.
Winding Up
The trashing of two-year service contracts at Verizon marks an important move in the wireless industry, which is seeing shifts from smartphone subsidies to EIPs. Four years ago, these two-year service contacts and smartphone subsidies were popular across all the major wireless network operators. Customers could purchase smartphones at prices far below their actual value, although they had to stick to a particular carrier for two years.
Such plans seem to have been replaced by EIP offerings, in which the cost of a phone is separated from the cost of wireless service. But in a way, wireless carriers are using EIPs and leasing options to bind their users to their services –– just as they used to do did with two-year service contracts and subsidized phones. For consumers, the difference between the two approaches is that now they have the option to pay off their device at any time and switch providers without incurring early termination fees. And if they stay with their provider, they will typically pay lower monthly service fees if they pay for their device in full.
Inspite of Verizon’s impressive and strategic diversifying business models, shares of Verizon have failed to beat the Zacks categorized Wireless National industry’s performance in the past one year. Verizon has gained 18.12%, lagging the industry's growth of 24.91%. Hence, the company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Verizon (VZ) Dumps 2-Year Contracts, Upgrades Fee to $30
According to a recent report by FierceWireless, U.S. telecom behemoth Verizon Communications Inc. (VZ - Free Report) announced its plans to put an end to the two-year service contracts for both its new and existing customers. The company further made it mandatory for all customers to sign up for its equipment installment plans (EIPs).
The upgrade fee, which was introduced last year at $20 for device payment plans or full retail purchases, is now $30. Additionally, the $40 upgrade fee for those buying phones on a 2-year contract no longer exists. The changes were made effective on Jan 5.
However, several analysts believe that the main motive of Verizon behind the hike in upgradation fees is to enjoy some profits in the New Year.
This is not the first time that Verizon has forged ahead with such dumping plans. In Aug 2015, Verizon had made a similar discontinuance of service contracts to new customers and offered them to only those existing customers who wanted to use the plans.
T-Mobile US (TMUS - Free Report) was the first wireless carrier to introduce EIPs in early 2013 and dumped service contracts. The plan has since then been launched by all the major carriers of the nation. The strategy, however, was in favor of T-Mobile US and has helped it grow its lucrative base of postpaid subscribers during each of the first three quarters of the year. Henceforth, other U.S. wireless carriers also started following this trend of shifting from subsidized handsets and contracts to postpaid users.
On Dec 30, 2015, another U.S. wireless carrier AT&T Inc. (T - Free Report) confirmed its decision to stop offering two-year contracts to its consumers, effective Jan 8, 2016. As per the stoppage, both new and existing customers had to either buy a new phone at full retail price or through its EIP –– AT&T Next.
Sprint Corp. (S - Free Report) also joined the rest of the tier-one U.S. carriers from Jan 8, 2016.
Winding Up
The trashing of two-year service contracts at Verizon marks an important move in the wireless industry, which is seeing shifts from smartphone subsidies to EIPs. Four years ago, these two-year service contacts and smartphone subsidies were popular across all the major wireless network operators. Customers could purchase smartphones at prices far below their actual value, although they had to stick to a particular carrier for two years.
Such plans seem to have been replaced by EIP offerings, in which the cost of a phone is separated from the cost of wireless service. But in a way, wireless carriers are using EIPs and leasing options to bind their users to their services –– just as they used to do did with two-year service contracts and subsidized phones. For consumers, the difference between the two approaches is that now they have the option to pay off their device at any time and switch providers without incurring early termination fees. And if they stay with their provider, they will typically pay lower monthly service fees if they pay for their device in full.
Inspite of Verizon’s impressive and strategic diversifying business models, shares of Verizon have failed to beat the Zacks categorized Wireless National industry’s performance in the past one year. Verizon has gained 18.12%, lagging the industry's growth of 24.91%. Hence, the company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>