Confusion With Verizon Communication Inc. (NYSE:VZ)’s Latest “No Contract Plan” Offering
Verizon Communication Inc. (NYSE:VZ) is trying to catch up in the No Contract Plan space, and the company has already outlined how it expects the move to affect it. The company expects its earnings to remain flat next year as it transitions customers to a new service and device purchase model. That is as far as disruption for Verizon’s bottom-line goes, what about disruption for subscribers in the new dispensation? As it turns out, Verizon’s No Contract Plan requires subscribers to take time to digest it to avoid confusion.
Verizon is the only one among the four largest carriers that still has most of its subscribers stuck to the legacy two-year contract plan. Just about 16% of Verizon’s subscribers have switched to the No Contract offering, which compares to 54% at AT&T Inc. (NYSE:T). However, Verizon is trying to catch up, although the move to No Contract Plan will cost it earnings growth in 2016, the management warned.
For Verizon Communication Inc. (NYSE:VZ), there is earnings disruption in the move to the new pricing model. As for subscribers, there might be a bit of confusion.
The new pricing plan
Under the No Contract Plan, customers are not tied to the usually restrictive two-year service plans. You can purchase your service at full retail price and only have to pay the service cost available on different tiers. In other words, the new pricing model takes away device subsidy but makes service cost cheaper.
The old plan
Previously, Verizon Communication Inc. (NYSE:VZ) allowed you to get a new iPhone at a $400 discount but be tied to a two-year plan that requires you to pay a particularly amount of money each month. For carriers, the two-year plan has always been seen as a serious money maker, and abandoning it didn’t seem easy. That explains why Verizon’s No Contract Plan looks a bit sophisticated.
A bit twisted
While the carrier shifts to No Contract Plan offering, it won’t kill of the two-year contract plan. Verizon Communication Inc. (NYSE:VZ) says that subscribers can keep their existing contracts but still switch to the No Contract Plan, and that sets the stage for confusion. Equally confusing is whether there is any meaningful savings in switching to the new plan from an existing contract.
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