Verizon, the largest single cell service provider in the United States, is finally throwing in the towel and following T-Mobile's lead by ditching traditional contracts for its customers. Instead of two-year contracts and subsidized phone prices, Verizon is going with flat monthly fees for services and customers will pay full price for their smartphones—showing that sometimes the little guys really can make big changes happen.
Verizon ditches old-school contracts and subsidized iPhone deals
The little guy in this case is T-Mobile, the third largest U.S. cell service provider well behind Verizon and AT&T. T-Mobile started shaking up the smartphone market by offering no contract deals for its customers, along with monthly payment plans for new phones instead of the traditional subsidized pricing we've dealt with for years.
Verizon's new plans cost US$20 a month, plus the price of a data plan. Those come in at $30 for 1GB a month, $45 for 3GB, $60 for 6GB, and $80 for 12GB. Going over your monthly data cap will cost you an extra $15 per gigabyte, which will no doubt have customers watching their usage closely considering how hefty the fee is.
Customers will also pay unsubsidized prices for their smartphones, either up front or as a recurring monthly fee on top of their regular bill. That's another change T-Mobile introduced, and AT&T later followed with its Next plan.
iPhone critics say pushing customers out of subsidized plans could have a negative effect on Apple's sales because so many Android-based phones are cheaper. If T-Mobile and AT&T sales figures are any indication, however, Verizon and Apple will continue to do just fine. Customers who otherwise have to wait two years to buy their next iPhone can get into a new model sooner with the no subsidy plans, and the cost difference compared to Android phones doesn't seem to be having a big impact.
Instead, unsubsidized prices may have a bigger impact on higher end Android phone sales—at least for the cost-conscious consumer. Shoppers in the market for pricier Samsung Galaxy smartphones, for example, may be lured in by lower cost Android phones from other companies.
For Verizon, it probably isn't much of a concern which smartphones its customers use as long as they stay with the company, and that's likely a big driving force behind the move away from traditional contracts and subsidized pricing. The plans T-Mobile is using to entice new customers forced AT&T's hand, and now Verizon's. Neither wants to lose customers, which is what they're facing thanks to T-Mobile's upstart ways and game-changing no-contract plans.
In other words, it's the little guy setting the rules the big guys have to play by. Considering how expensive and feature-limited U.S. smartphone plans have been, that's a refreshing change, and hopefully T-Mobile will continue to buck the trend and come up with more ways to keep the competition alive.