Verizon Wireless will soon charge its subscribers a $30 fee to upgrade their phones in a move that is expected to boost its margins and contribute significantly to its earnings.
The nation’s largest mobile-phone company on Wednesday revealed that the fee will impact customers who buy new mobile equipment at discounted prices with a two-year contract. The fee takes effect April 22.
“While the upgrade fee is not unique to Verizon Wireless, most devices can be traded in with our green friendly trade-in program at www.verizonwireless.com/tradein as a way to save money or potentially offset the fee completely,” Verizon Wireless said in a statement.
Verizon and other U.S. carriers subsidize devices like the iPhone in order to win new subscribers and put their current customers on more expensive plans. Those subsidies, however, eat into their margins.
BTIG equity analyst Walter Piecyk anticipates that the fee could contribute up to $1 billion to Verizon’s annual EBITDA (earnings before interest, taxes, depreciation and amortization) and 150 basis points to the company’s wireless margin. The analyst’s calculation is based on an estimate that Verizon Wireless sells 33 million phones to its current customers.
“The incremental fee by itself is hardly going to be enough to materially curtail upgrade activity but it is yet another step by a major operator to recoup the margin reducing impacts of phone upgrades,” the analyst wrote in a research note Wednesday.
In a research note a few days ago, Piecyk noted that iPhone sales have hurt margins at AT&T. In the fourth quarter of 2011, the analyst said, AT&T sold 7 million iPhones. But wireless margins dropped below 30 percent for the first time since Cingular Wireless purchased AT&T Wireless more than six years earlier, Piecyk said.
As you might expect, it didn’t take long for customers to light up the Verizon Wireless community forum.
“If you can’t afford the additional $30 to upgrade, it will stop some…like my family,” wrote thrstonlovi. “Forget it. I’ll activate my old basic phone and forget that smartphones even exist.”
“Upgrade fees are pointless money grabbing procedures,” said Grothka.
Others in the forum were more understanding, but felt defeated. “I don’t like the $30 upgrade fee but at least it’s still less than the other carriers,” wrote razrWill.