The free Verizon iPhone was incredibly popular on Verizon last year, despite the introduction of the iPhone 5 with 4G LTE.
According to Fran Shammo, Verizon CFO, who recently spoke at the Deutsche Bank’s Media, Internet, and Telecom conference, when the iPhone 4 went free in late 2012, it caused a spike in the number of customers who came, “into Verizon who took that free phone.”
While Verizon doesn’t break out the sales numbers for each model of the iPhone sold, the iPhone did account for 53% of devices sold in Q4 2012, which is significant. The promise of a free iPhone, and a cheap upgrade to the iPhone 4S likely played a role in the Q4 results.
Shammo reiterates the importance of keeping a balance between the free iPhone on 3G and newer phones on LTE, especially as the company plans to introduce 4G LTE only phones in 2014, but he welcomes the sales, stating, “I think you had one point in time where you had a free phone, a free Apple phone that never happened before with us and that generated a lot of volume.”
It’s no surprise that the free iPhone 4 on Verizon proved popular in 2012. The device is cheaper up front than buying a standard flip phone and is more attractive to many users than the budget Android smartphones like the LG Lucid.
Part of the reason for this is the large subsidy that Verizon offers customers, especially on the iPhone. The free iPhone on Verizon is actually, $449 without a two-year contract. Based on his other comments at the conference, these subsidies will shrink in the next two to three years. To put it another way, By the time these iPhone 4 owners go to get a new iPhone, there may not be such a thing as a free iPhone on Verizon.
Verizon claims that it doesn’t steer customers to specific phones, and that it won’t add incentives to try to get shoppers to pick a specific phone. Shammo explains that in addition to frustrating customers this practice would cost Verizon in the long run.
The answer is, no, we don’t and it is critical that we don’t do that. The reason for that is because what is more important for us is when a customer walks into a store that customer walks out with a phone that they will be happy with and not return under our 30-day guarantee. Because the worst thing that can happen for us is for me to incent a salesperson to get you into a phone that you walk out the door with thinking you are going to like and in three days you come back because you don’t like it. Therefore, now I’ve just subsidized two smartphones because that phone you used I can’t resell as a new phone.
So what we incent our salesforce is to make sure that they are educated on the phones in the front line, make sure that they can talk about the differences between the phone, but, ultimately, get that customer in a phone that they are going to want and enjoy and not bring back. So we actually incent them on price plans, not on handsets so every handset is treated equally within our lineup. And that is important to us.
Verizon isn’t alone in the plans to cut down on subsidies, T-Mobile is planning to ditch smartphone contracts soon, and we may see other carriers follow suit if they see customers are willing to pay.