Does Verizon Want T-Mobile to Succeed?http://www.fool.com/investing/general/2013/03/04/does-verizon-want-t-mobile-to-succeed.aspx Evan Niu, CFA
March 4, 2013
Wireless carriers have a love-hate relationship with smartphone subsidies. T-Mobile is making a risky move later this year when it ditches them altogether. The No. 4 domestic carrier is facing stiff competition in the postpaid market, in part because it has always lacked Apple's iPhone in any official capacity.
As T-Mobile pursues its unsubsidized plan, the rest of the industry will be watching with bated breath to see how customers respond to the prospect of paying full retail price for smartphones, even if they can obtain financing to do so. Spanish carriers have already showed T-Mobile of what kind of pain may be in store, since their own attempts proved to be a disaster. Two months ago, Verizon (NYSE: VZ) CEO Lowell McAdam expressed interest in ditching subsidies, but acknowledged that consumers aren't ready to give them up.
According to Kantar Worldpanel ComTech's most recent estimates, over 95% of smartphone sales in the U.S. are either iOS or Android. Verizon has a vested interest in seeing that combined figure decline, with the hopes that subsidies will fall along with it.
Additionally, Shammo sees voice-over-LTE as another catalyst for subsidy deterioration, as devices will technically be able to remove the CDMA chips inside and reduce component costs. Big Red is planning on rolling out VoLTE later this year. That doesn't mean that Verizon's 3G CDMA network is going anywhere, though, as the carrier previously said it was aiming for 2021 as a possible retirement date for its 2G and 3G networks. But as newer devices shift toward VoLTE, that could affect its ongoing subsidy costs.
In order for a subsidy reduction to materialize due to VoLTE, Verizon will need to convince (or require) OEMs to build devices specifically tailored for its network and lacking older CDMA chips, whi