Verizon Wireless (NYSE:VZ) announced it will no longer allow customers to upgrade their handset at a subsidized price before the end of their 24-month contract. Previously, the carrier allowed some subscribers to upgrade their phones at a subsidized price after 20 months.
The action is likely an attempt by Verizon to improve its margins. The carrier, like most other wireless operators, offers phones at far below their actual value, and ties customers into a two-year service contract in order to recoup the cost of that phone subsidy. Those subsidies can cut into wireless carriers' profits.
Verizon said it will begin implementing the change in its upgrade policy on customers whose contracts expire in January 2014. Verizon pointed out that customers "may purchase a new phone at the full retail price at any time prior to the end of their contract."
Verizon also said that customers with "New Every Two" credits have until Monday to use those credits. Verizon ended its New Every Two handset upgrade program in January 2011.
Finally, Verizon said that customers can continue to share an upgrade with another person on an account "as long as that customer is purchasing another device in the same category." Verizon said a basic phone or a smartphone upgrade can be used to purchase another mobile phone, but customers can't transfer that upgrade opportunity to "non-phone devices" like a mobile hotspot or tablet.
This isn't the first time Verizon has tweaked its policies to protect its margins. The carrier last year began charging a $30 upgrade fee for existing customers purchasing new mobile equipment at a subsidized price with a two-year contract.
And it appears Verizon's actions are working: The carrier has said it expects its wireless EBITDA margin to rebound from a dip last year of 46.6 percent to around 49 to 50 percent this year.
Further, Verizon isn't alone in boosting its margins by tightening its upgrade policies. As Americans continue to snap up expensive smartphones, most of the nation's other major carriers have restricted their handset upgrade policies to boost margins. For example, AT&T Mobility (NYSE:T) late last year said its wireless EBITDA service margin increased to 45 percent from 41.1 percent in the year-ago quarter due to changes the carrier made to its handset upgrade policy, as well as higher upgrade fees and altered pricing for mobile data.
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