Verizon Wireless (VZ), the largest U.S. wireless carrier, is extending its waiting period for phone upgrade discounts to boost profits.
Beginning in January, customers will have to wait 24 months instead of 20 months to get a cheaper price for a new device, Basking Ridge, New Jersey-based Verizon Wireless said in a statement yesterday. The move aligns new phone discounts with the expiration of two-year service contracts. the company said.
Reducing the frequency of discounts means that Verizon can squeeze out four more months of subscription fees from every customer before having to offer a subsidy. Verizon Wireless pays an average of about $350 per phone to attract or retain customers, offering devices such as the iPhone for $199 with a two-year contract, said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York.
“If there are fewer upgrades, it will boost margins,” said Smithen.
Verizon Wireless’s profit margin for mobile-phone service shrank to 41.4 percent in the fourth quarter from 42.2 percent a year earlier, a trend the company attributed to costs for smartphone discounts.
Last year, AT&T Inc. (T), the second-largest U.S. wireless carrier, lengthened its upgrade eligibility period to 20 months and also doubled its fee for the service to $36. The move lowered the Dallas-based company’s subsidy costs and strengthened profits.
Mark Siegel, an AT&T spokesman, declined to comment on whether the company would follow Verizon’s extension.
To contact the reporter on this story: Scott Moritz in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Nick Turner at email@example.com