Contract term extended by Verizon Communications Inc (NYSE:VZ) – T

Boston, MA 04/15/2013 (wallstreetpr) – In a bid to boost its profits, the largest carrier in the United States, Verizon Communications Inc (NYSE:VZ) (Closed: $50.86, Up by 0.69%) is extending its phone upgrade discounts waiting-period. In a statement, the company said that starting January, Verizon customers will be in for a 24 month wait instead of 20 months to be eligible for a lower price on a new device and the new phone discounts will be aligned with the expiry dates of the two-year service contracts.

The profitability mantra

The Basking Ridge, New Jersey-based Verizon said that in effect what this means for the company is that the reduction in the frequency of its discounts will help them wrangle an additional four months of subscription fees before being liable to offer a subsidy, from every customer.  To attract or retain its customers, Verizon Wireless pays close to an average of $350 per device. It offers customers devices like the iPhone for a cost of $199 on a two-year contract. Analysts have said that when there are fewer margins the margins will automatically get a boost. In the fourth-quarter, the company’s mobile-phone service profit margin had shrunk from the 42.2 percent that it stood at a year earlier, to the current-day 41.4 percent.

The double-edged sword

Verizon said that this particular trend had been attributed to the costs of the smartphone discounts. Last year, the second-largest wireless carrier in the U.S, AT&T Inc (NYSE:T) (Closed: $38.59, Up by 0.13%) had extended the eligibility of its upgrade period to 20 months. In addition to that, the fee for the service had been doubled to $36. This move had helped in lowering the subsidy costs of the company and also strengthened its profits. The AT&T spokesperson, Mark Siegel did not comment on whether the Dallas-based company would follow in Verizon’s footsteps and extend its eligibility for the upgrade.

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Published by Fiona Gibson

Fiona is a finance graduate and an expert in analyzing market trends.

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