Award Winning Blog

Wednesday, September 24, 2008

Such a Deal: Wireless Service Without a 2 Year Commitment

Today’s Wall Street Journal (at B5B) reports that Verizon Wireless will now allow subscribers to buy unsubsidized handsets in exchange for which subscribers can avoid a two year service commitment. Before you consider this a major concession to consumer sovereignty recognize that Verizon has not announced a discounted service rate to reflect the elimination of a handset subsidy obligation.

The WSJ article notes that Verizon will sell a Blackberry handset for $430 in lieu of the subsidized price of $100. Because Verizon surely does not operate as a charity, the two year service commitment required of subscribers acquiring a subsidized handset, has at least a value of $330 to both Verizon and subscribers. Verizon must build in its monthly service rate sufficient revenue to recoup the $330 over two years. Subscribers slowly pay back the $330 handset subsidy through higher service rates.

When someone becomes a Verizon subscriber using an unsubsidized handset, these subscribers in effect pay a surcharged rate of at least $165 annually by foregoing a handset subsidy yet paying the same rate as handset subsidized subscribers.

Such a deal.