Earlier this month, Verizon CEO Lowell McAdam confirmed that it would be easy for the company to slip into a no-contract mode similar to what T-Mobile is offering, allowing customers to purchase a smartphone or tablet over a two-year period without the need for an actual service-based contract. Thanks to this new model, T-Mobile has essentially turned into a gadget "dealership" with supporting services on the side as an option. McAdam indicated that he would keep an eye on consumer response to this new disruptive model.
Then last week Verizon announced that starting Sunday April 21, customers will have the option of purchasing a phone at full price at any point before their contract expires. The company also said that smartphones and tablets costing more than $350 (after discounts and promotions, and before taxes are applied) can be bought in twelve monthly payments. The monthly finance charge will be $2.50, and customers will need to make the first payment at the time of purchase.
What the company hasn't explained thus far is how contracts will be handled if customers take the twelve-month monthly pan, or if they pay off their current device. To make matters worse, Verizon just previously stated that early upgrades were no longer allowed, that subscribers must wait the entire twenty-four months before they can get a new device. However customers may continue to share an upgrade with another person on an account if that customer is upgrading to a device within the same equipment category.
During Verizon's first-quarter earnings conference call on Thursday, Wall Street analysts had a lot of questions for the company in regards to the consumer response to T-Mobile's new plan. Harsher financial times are pushing customers into looking into no-contract deals like T-Mobile's offering, or prepaid options that don't require a two-year commitment. Even more, Verizon's new upgrade policy seemingly makes two-year contracts that much less attractive.
"We don't anticipate a lot of dissatisfaction," said Verizon Chief Financial Officer Fran Shammo during the call. "We're not seeing a lot of resistance here."
But there is consumer resistance. A current petition on Change.org is a perfect example, requesting Verizon to drop the contracts so that customers can upgrade quicker. The petition, launched by Mike Beauchamp of Wichita, Kansas, cites the rapid change in technology and shifting patterns in usage as two reasons why contracts are old-school business.
"Why would anyone want to be tied into a contract for two years?" he states. "The major handset manufacturers all release updated, newer, faster, more powerful devices much more frequently. Apple and Samsung, the two dominant players in mobile, release a new flagship phone every year like clockwork. Most other OEMs do, as well."
Shammo said during Thursday's call that it's the younger customers who are more prone to upgrading quicker. Many older customers will keep their phones long past the two-year obligation. Verizon is currently trying to figure out the perfect balance between the two groups.
"We're trying to conform to consistent policy so it makes sense for customers and us," he said.
The Change.org petition currently has gained 88,659 signatures since its launch on April 5, but needs 61,341 more before it's sent to Verizon Wireless. "I've been a long-time Verizon customer and I don't see myself ever leaving, but I want that choice myself," states petition author Beauchamp. "I don't want them making it for me and imposing stiff penalties if I do decide to leave."
Agreed. See McAdam? Your customers are speaking.