Verizon Communications Inc.(NYSE:VZ) has scrapped its two-year service contract plan, a move that could make buying of new phones from the network more expensive. While the company had stopped offering the two-year service contract to new customers in 2015, it still allowed existing customers to renew existing contracts. However, that will not be the case going forward the giant carrier having scrapped the plan altogether.
Scrapping Two-Year Phone Contracts
The new policy will however not affect enterprise and government accounts. The removal of the two-year contracts to retail customers has become a formality in the industry, as carriers turn their attention to installment plans that have turned out to be highly reliable in keeping customers loyal to particular networks.
Customers, who wish to upgrade to new iPhones, as well as Samsung Galaxy smartphones, will now have to pay the full price. Those who are not able to pay the price all at once will be allowed to make monthly installments over a two-year period
Impact of Scrapping Phone Subsidies
Customers paying $199 for subsidized phones forced Verizon to cover for any additional charges associates with direct Samsung and Apple charges. With the canceling of the 2 year contract, the carrier should be able to save money as it moves to compete against the likes of T-Mobile US Inc (NASDAQ:TMUS) that scrapped the same service plan a long time ago.
Scrapping phone subsidies is however expected to affect the rate of phone upgrades, as customers will start to hold on to their phones for a longer period. Scrapping the two-year service plans could spark the demand for cheaper smartphones more so from popular Chinese brands such as Huawei, Blu and Oppo. While most of these phones sell for under $200, they also come with features found in high-end brands such as Samsung and Apple Inc. (NASDAQ:AAPL).
In addition to scrapping the two-year service plan Verizon has also increased the upgrade fee one pays when buying a new phone from $20 to $30.
Verizon was down by $0.58 in Monday trading session consequently ending the day at $52.68 a share.
Vanguard Group is the largest owner of Verizon with 263,513,366 shares valued at about $ 13.6 billion. Capital Research Global Investors is the second larger shareholder with 150,363,577 shares held valued at about $7.8 billion and closing the trio is State Street with a 111,770,313 share position valued at about $5.8 billion.