Verizon Wireless: We Never Stop iRaising Your Bill for You!
Cell phone carriers really want your business, so much so that they offer deals that seem almost too good to be true, especially when it comes to the coveted iPhone. It’s not unheard of for a customer to grab one of the devices for less than $200.
All one has to do is sign a two-year contract and stick to it, right? The company makes its money back, turns a bit of a profit, and everyone’s happy. Right?
Well, not so much.
Apple doesn’t lose out when carriers such as Verizon Wireless (or any other carrier) offer great deals. Apple gets its money, which in the case of the iPhone 5 means Verizon pays Apple about $650 per unit.
But wait!, you say. How does Verizon make its money?
Usually, the purpose of a two-year contract is so that the carrier can recoup their costs–about $400 in the case of the iPhone–and make paying the subsidy worth it. That’s what most carriers do. That’s how this game works.
Leave it to Verizon to be unusual, however.
As part of its fourth-quarter reporting, Verizon reported that it increased its customers’ bills to the tune of 6.6%, so that the average bill ends up being about $147.00, despite the fact that–in an era where competition is fierce–the other guys offer the same level of service for less.
It’s unclear whether the bills of those who don’t have an iPhone saw the increase too. If so, they would be subsidizing other peoples’ iPhones.
Executives at the wireless behemoth wept, wailed and gnashed their teeth about the $2.8 billion in subsidies that the company paid over the course of the quarter; that’s about $9.3 million a month.
Of course, they shed no tears over the roughly $10 billion per month they collect, on average, from monthly bills.
Through proverbial bitter tears, Chief Financial Officer Fran Shammo metaphorically raised his fists to the air and said that with the late Steve Jobs’ spirit as his witness, subsidies will soon be reduced.
What does that mean for the common man? If Verizon follows through with the threat, it could mean that a new iPhone could cost well over $400, even with a two-year contract. After all, the company needs to pay for its executives’ yachts and country club memberships somehow, right?
Dispensing with the snarkiness now, it’s important to understand the implications here. It almost seems as if Verizon wants to have its cake and eat it too, leaving its customers to foot the check and the tip. It wouldn’t be surprising if they’d like the customers to tip the valet as well.
Unless we’re missing something here, Verizon wants to raise its customers’ bills and cut the subsidy they offer.
If they decrease the subsidy, will they likewise decrease the bill? If not, that could reasonably be called greed of the highest order.
If the average bill is $147, a two-year contract will yield Verizon about $3,700. That handily gives a return on the investment Verizon made when they paid the subsidy. If a customer doesn’t fulfill their contract, they collect a termination fee, which is designed to recoup losses on the subsidy.
But they wouldn’t think of increasing that fee to offset the costs executives are shedding wealthy, gold-lined crocodile tears over, now would they? Of course not; that would be too simple.
Of course, Verizon Wireless is a business and not only a business, but a publicly-traded corporation. It has to answer to shareholders. We get that.
They’re here to make a profit, not toss free iPhones to the unwashed masses and provide service out of the goodness of their…well, we digress.
It cuts both ways, however. Verizon is a business, but customers have a choice. If Verizon reduces or even eliminates its subsidies, but T-Mobile, Sprint or AT&T make great offers for new contracts, what reason do the customers have to stay?
At that point, the loss to Verizon’s bottom line would be far worse than it ostensibly is with the subsidies as presently constituted.
If the cell phone giant isn’t careful, the customers they’re trying to bleed will turn into proverbial turnips and do…well, whatever it is that turnips do when they’re bled dry, and go to a carrier who can not only turn a profit while paying a subsidy, but show their customers the respect and appreciation they deserve.
This article reflects the views and opinions of its author. iPhone Alley and its management does not necessarily share the views expressed herein.