How much will Verizon Wireless’ new $30
upgrade fee add to the operator’s coffers over the next year?
BTIG Research Analyst Walter Piecyk says
the charge could add about $1 billion to the company’s annual earnings before
taxes, depreciation and amortization.
“Our estimate of $1 billion in
EBITDA savings to Verizon is simply based on our estimate that it sells 33
million phones to existing customers,” Piecyk said yesterday in a blog post.“It’s possible that some of these
upgrade phones are not subsidized and would therefore not incur the new fee but
we would guess that there aren’t many people paying full price to upgrade to a
$600 smartphone just to stay off a two year contract.”
The estimate, if accurate, is nothing to
be sneezed at, even by a company the size of Verizon Wireless. The figure is
about one-sixth of its $6.4 billion fourth-quarter earnings before taxes,
depreciation and amortization.
Verizon declined to comment on the
report. Spokeswoman Brenda Raney said yesterdaythat the new fee “will help us continue to provide customers with the level
of service and support they have come to expect.”
Verizon was the last of the country’s
top four operators to charge existing customers additional money for upgrading
to a new phone on contract. Subscribers with Sprint and AT&T pay $36 when
they move to a new device with a two-year contract, while T-Mobile USA
customers pay an $18 upgrade fee.
The tolls won’t be the last move
operators take to curb expensive, profit-eroding device upgrades, Piecyk said.
“Could it be long before
smartphones get their own additional upgrade ‘surcharge’?” he said, citing
the extra $10 Sprint tacked on to its smartphone data plans.
So why not incorporate the upgrade fee
into the cost of the device, instead of tacking it on as a hidden charge?
The answer is marketing, said Piecyk:
“Upgrade fees like these enable carriers to advertise a fully subsidized
cost and yet reduce the impact on sales by labeling it an upgrade fee.”