Verizon Communications Inc.
) is also bent on providing early upgrades to customers, however
with a different strategy. The company is offering frequent
upgrade of devices for customers willing to pay the purchase
price in installments.
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With no change in the company's service pricing, we believe the
new strategy would imply added expenditures for customers, while
the company will gain from zero subsidies on phone upgrades by
offering the part payment facility. The company is spending
hugely to subsidize the handsets, which largely remains a drag on
The Street estimates that the new policy in phone upgrades will
not have much of an impact as very few subscribers would go for
early upgrades without any subsidies on devices. However, given
the smartphone frenzy in the market, we believe customers will be
carried away by the "in thing", which makes premium handsets like
) iPhones a big hit of it times despite cheaper alternatives in
Catching on this smartphone fever, we believe Verizon and its
peers are likely to make up for the losses they bear on equipment
subsidies initially by introducing new plans on selling devices.
A few days ago, AT&T also announced of a similar move, which
entailed early upgrades to smartphones and tablets every year
without paying extra on down payment, activation fee, upgrade or
While AT&T and Verizon are focusing on smartphone upgrades,
another major wireless provider
) announced the launch of unlimited plans for voice, text and
data services. The service, known as Sprint Unlimited Guarantee,
would offer unlimited data for $30 a month on smartphones and $10
per month on other phones.
We believe the upcoming plans and policies to attract more
customers will ultimately generate meaningful gains for these
carriers. Coming back to Verizon, the company in posted a
substantial year-over-year gain in earnings. Further, revenues
were also higher thanks to the success of the strategies it has
adopted to date. Its investments for enhancing wireless
operations, expanding global networks, improving FiOS services
and tapping growth opportunities in broadband, video and cloud
activities also bode well for its profitability and we expect the
new initiative of phone upgrade to also reap benefits for the
Verizon currently has a Zacks Rank #3 (Hold).