Verizon's Shammo: Device subsidies will drop over next 2-3 years

Verizon Wireless (NYSE:VZ) expects subsidies for smartphones and other devices to fall over the next two to three years as competition intensifies among operating systems and devices move to being LTE-only, according to a senior Verizon executive.

Speaking at the Deutsche Bank 2013 Media, Internet & Telecom Conference, Verizon Communications CFO Fran Shammo said Microsoft's (NASDAQ:MSFT) Windows Phone, BlackBerry (NASDAQ:BBRY) 10 and other emerging smartphone platforms will lead to more competition and lower prices among smartphones, which will, in turn, reduce subsidy costs for carriers. "I'm a believer that over the next two to three years subsidies will start to decrease just because of the ecosystems," he said.

Shammo also said that as Verizon moves to Voice over LTE technology late this year and early next year, the company will begin to launch devices without CDMA chipsets in them, which also should reduce subsidy costs.

The issue of subsidies has been heating up recently, mainly because T-Mobile USA plans to soon move exclusively to its Value plans, which do not offer traditional devices subsidies. Executives from other carriers, including Sprint Nextel (NYSE:S) and AT&T (NYSE:T), have said they will look at how T-Mobile's plans perform in the market before deciding to make any changes. Shammo said that subsidy costs are a big part of Verizon's expenses, but only one part, and he said that the subsidy model has prevailed in the U.S. market for the last 12 years. Carriers typically see their margins decrease when they sell a large amount of smartphones because of the higher subsidy costs they incur.

As part of his talk Shammo discussed Verizon's shared data plans, called Share Everything. Verizon, which launched its Share Everything plans at the end of June, said that as of the end of the fourth quarter 23 percent of its postpaid customers were on the plans. Shammo said that so far sales of cellular-connected tablets have been lower than Verizon expected (tablets cost $10 per month to add to a subscriber's data plan). However, he said that Verizon has seen greater adoption of mobile hotspot devices.

"The plan's working the way we thought, maybe in different devices, but people are adding more devices, which is a net add," he said. Adding more mobile hotspot devices, in turn, leads to higher average revenue per user, he said.  

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