How much will Verizon Wireless’ new $30 upgrade fee add to the operator’s coffers over the next year?
BTIG Research analyst Walter Piecyk said 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 yesterday that 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.”
