Only a company in the wireless industry could take away a consumer benefit and sell it as a positive thing to customers.
That's exactly what Verizon (NYSE:VZ) is trying to do with its new rate plans. Marketing it as an effort to simplify its offerings for customers, the company has slimmed down choices, eliminated contracts, and gotten rid of subsidized phones.
And while the first two may be admirable, it's the last one that should have people up in arms. Simplicity without contracts is a good thing, but ending device subsidies may not be quite as positive a move.
And the carriers are at it again... Copying our #uncarrier moves once more and repackaging their half-assed versions as "new."— John Legere (@JohnLegere) August 7, 2015
What is Verizon doing
As T-Mobile (NASDAQ:TMUS) CEO John Legere noted in his tweet, Verizon has essentially copied its rival -- at least on the surface. If you don't look too deeply at the offer, it seems like a good deal that is actually more simple than Verizon's previous contract-based offers. The company has slimmed down its plan offerings to four choices:
- Small: $30/month for 1GB of shareable data
- Medium: $45/month for 3GB of shareable data
- Large: $60/month for 6GB of shareable data
- X-Large: $80/month for 12GB of shareable data
Extra data costs $15 per GB and the lack of a contract means customers can leave anytime.
"Choosing a wireless plan is now easier than ever. Customers said they don't want to have to do a lot of math to figure out their best options, and we heard them," said Rob Miller, vice president of consumer pricing for Verizon Wireless in a press release. "A plan with small, medium, large and x-large choices makes sense for the way people actually use their wireless service."
Look a little deeper, however, and you'll notice that Verizon has not dropped its policy of the data price not being the actual price. Yes, you can pick from the plans above and you can even share them with up to 10 devices, but you will pay an extra fee for each one. A smartphone is $20 a month, tablets and mobile hotspots are $10, and connected devices including smart watches are $5.
It's simple except it isn't, and the price is, well, not actually the price.
Say goodbye to $200 iPhones
In addition to simplifying its plans and dropping contracts Verizon has also eliminated device subsidies. Under the subsidy models, customers got a lower price on a new phone in exchange for paying a higher rate for service over a two-year contract.
It was essentially a form of financing that locked customers into a service provider while giving them access to top-tier phones they otherwise might not have been able (or willing) to afford.
No longer offering subsidies and making customers either finance or buy their phones outright should in theory come with a price drop. In most cases, that is true as Verizon's new rates are lower than its old ones by an average of $20 a month, though by only offering four options, some customers may be forced to either spend more or risk data overages.
In reality, though, for people used to subsidized phones, it's basically a wash. Under the old model, a top-tier phone would cost $199 up front for a phone with a $649 retail price. The difference was made up by charging $20 more a month for the plan -- $480 over the life of a two-year contract.
Now Verizon customers can either pay the cost of the phone at the beginning or finance it. In the end, for a $649 phone that comes out to a slight savings.
Verizon is going in the right direction
Dropping contracts and simplifying prices do make it easier for Verizon customers to know what they are paying. In the past, under the two-year contract model, the company essentially buried the cost of the phone subsidy in its monthly charges. Now, it's being more direct with customers, which may lead some to hold onto their phones longer or opt for cheaper ones in the first place.
Of course, true transparency would mean rolling the extra line charges into its plans and actually advertising the price the company actually charges. You can buy 1GB of data for $30 a month, but you can't use it without paying a line fee for a device to use it on.
These changes are a step in the right direction but they still leave the company behind T-Mobile. More simple is a good thing, but to equal Legere's company, Verizon needs to drop hidden fees and eliminate overage charges.
Daniel Kline has no position in any stocks mentioned. He never tires of paying hidden fees. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.