Re: Verizon Wireless doubles early termination fee

Dennis Ferguson wrote:
On 2009-11-09, Carl <crothman@xxxxxxxxxxxxxxxxxxx> wrote:
Dennis Ferguson wrote:
Actually, mobile companies in many (most?) other countries run their
business exactly like that. Plans which aren't paying for a phone
are cheaper than equivalent plans which came with a phone. Even in
the US T-Mobile gives you a $10/month break on their contract-free,
no-phone-subsidy plans now.

Unfortunately the market in the US doesn't seem to be as intensely
price-competitive as other places so the carriers can mostly get
away with taking higher margins from out-of-contract customers.


You may have a point there. But what we (the layman-consumer) don't
know is if that $40/month basic plan (for one example) has a large
enough profit margin in it to cover both the service AND the cost of
a phone within only 24 months.

Perhaps Verizon (and others in the U.S.) work on a sort of
'capitation' system: that is, they depend on people continuing the
service without taking a new phone to defray the costs of the people
who do take phones; sort of an 'averaging out' system.

The only difference between your suggestion and mine seems to be
that your suggestion sees Verizon as eking out a living with bare
margins while mine has Verizon getting rich with fat ones.

But even we, the layman-consumer, can google up Verizon's 10-Q and
read it. VZW's postpaid retail ARPU is $51.20, so they apparently
have lots of customers (likely at least half) whose bill is about $40
per phone, yet VZW's operating margin is 28.4% in an industry where,
world-wide, a carrier managing to make a 10% margin is considered
fairly successful. And note that AT&T's operating margin last quarter
was 24.6%, while T-Mobile's from a couple of quarters ago was a
whopping 34%. The comparison with other countries shows up clearly
in the 2009 OECD survey of mobile service in 30 developed countries
which found that the US market was the most expensive of the 30, on a
PPP basis, for "low" and "medium" users, and 6th most expensive for
"high" users.

These are not companies squeezing down to razor-thin margins to
compete on price, in fact they don't compete on price at all. They
are big, fat cash cows, with high ARPUs and wide margins, generating
profits that
are unmatched in their industry just about anywhere else on the planet
and keeping their prices high to maintain them.

So I think it is highly unlikely that Verizon makes all its money from
out-of-contract customers who don't buy a new phone. They just make
even more money than normal.

Dennis Ferguson


Thank you for the most intelligent, well-informed and informational response
to date. These facts and figures give bite to your argument.

The ONLY point I can make now, in the light of your very factual
presentation, is that we need to decide if we like living in a capitalistic
society or want to move more toward socialism. Whenever people question the
right of a private company (as opposed to a "public utility", not "private"
as in "not-traded") to make the profit they can, I wonder what they're
thinking. Part of the point of a free-enterprise system is that consumers
should regulate the prices of a company by making different shopping
choices. If they choose to continue with a company that charges more, that's
their choice, and does not mitigate the right of a free-enterprise company
to make the profit it can, and might speak well of the company's service
compared to its competitors. When I want a Mercedes, I don't expect them to
charge the same as a Toyota. If Vz is too expensive, leave them and go
elsewhere if price is your overriding factor. It really is as simple as
that. I guess this bothers me because I see it as consumers wanting the
best of everything and the lowest price too, sort of like they have grown up
to believe that they should be protected by someone from all evils. Yes,
they have a right to complain, and perhaps a right to change the system, but
sometimes complaining sounds a lot more like whining.


.

Relevant Pages

  • Re: Verizon Wireless doubles early termination fee
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  • Re: Verizon Wireless doubles early termination fee
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  • Re: Verizon Wireless doubles early termination fee
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