Jan. 14, 2011 at 5:01 PM ET
Oh, "New every two" at Verizon Wireless, I leaned on you.
I cherished you and you do me like this: Starting Sunday, Jan. 16, you will go away, discouraging me from changing phones despite the polite but persistent messages you've sent me in recent months, encouraging me to do just that (including the text message you sent me just a week ago today, offering $100 off an Android phone. But that was before you announced you're adding the iPhone to your stable).
I will not be seeing those messages anymore. Nor will any of your 93 million or so customers.
The carrier has been providing discounts (read: subsidies) of between $30 and $100 on new phones to customers who re-up their two-year contracts. (And in some cases, if you chose a new phone that cost $100 and got $100 off, you got a "new every two" free phone.)
With the iPhone soon to be in the Verizon house — as of Feb. 3 for pre-orders, Feb. 10 for in-store availability — one of the most popular smart phones around (cost, either $199 or $299 with a two-year-contract) holds the potential for a real financial mess when it comes to "new every two."
The carrier is doing away with the program after Sunday, and is working on another upgrade-friendly effort, not yet announced.
"Verizon Wireless is going to sell a lot of iPhones, which already carry heavy subsidies," said Avi Greengart, consumer devices research director for Current Analysis. "Now that it has the most popular smart phone on its own network, the carrier does not need to offer further incentives to keep its subscribers from churning."
True, true. But: "All of this adds up to more out-of-pocket costs for Verizon customers," noted SmartMoney, in a recent story:
With the New Every Two perk, a longtime customer with a $100 credit could get the iPhone4 for $99.99 — half off its new-subscriber price of $199.99. When the program ends, new subscribers will no longer be eligible for those discounts. Existing customers will lose the perk when they renew their contracts (unless they renew before Jan. 16 — but that date is well before iPhone orders will be taken). And with the end of the early upgrade program, 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 (for the iPhone, that's currently a difference of $400).
Other analysts echo what Greengart says, SmartMoney notes:
Every time a customer upgrades his phone at a discount, there's a significant cost to the company. As of now, carriers lose money on every discounted handset, but make it up with income from a two-year contract. (That subsidy is why a new 16GB iPhone 4 costs $199 with a contract and $599 retail.) By forcing consumers to wait to upgrade – or pay more to do it – the company cuts its losses, without losing any income from the contracts. "The longer you can get customers to go between upgrading their phones, the stronger the profitability for the carrier," says Michael Hodel, an equity analyst covering Verizon for Morningstar. That point hit home for Verizon rival AT&T ... last year when it allowed subscribers to upgrade early — often even waiving its $18 processing fee — when the iPhone4 was released on its network. Its profit margins shrunk considerably, says Hodel.
Sigh. And, of course, we are still waiting to learn what kind of monthly plans Verizon will be offering for the iPhone.