Verizon Wireless has announced some broad plans for its growing LTE network in the U.S., and the end result could cost customers more in terms of up-front costs when purchasing a smartphone on contract. Speaking at the Deutsche Bank’s Media, Internet, and Telecom conference, Verizon CFO Fran Shammo advises that the carrier will start reducing subsidies for smartphones beginning in 2014, which means that customers who sign up for a two-year service agreement on the network will have to pay more out of pocket for a device.
The carrier had announced earlier in the year that it would be observing how the market would react to T-Mobile’s decisions to end subsidies. Verizon’s plans for 2014 isn’t as drastic as T-Mobile, though the amount that the carrier subsidizes would be less than what it is offering customers currently.
In a report on Fierce Wireless, the move is spurred by Verizon’s move to voice over LTE, or VoLTE, by the end of this year into early next year. This would allow the carrier to offer richer call quality, but also this would reduce congestion on the network as LTE is more efficient than the legacy CDMA network that voice is currently piped through. Moreover, this could also mean improved battery life on smartphones as 4G phones on Verizon currently have to have both LTE and CDMA radios fired up simultaneously for simultaneous voice and data multitasking.
The carrier hopes to phase out CDMA chips on future phones, meaning that as early as 2014, all phones on Verizon will be LTE devices. The carrier intends on reducing subsidies at that point:
“We will ultimately get to voice over LTE, probably end of this year, beginning of next year. Then if you look out into late 2014 then you start to think of things like, okay, so now I can start to take the CDMA chip out of the phone and just have a pure LTE handset. That also starts to reduce subsidies. So over the next two to three years I think we will start to see subsidies come down.”
In addition to Verizon, both AT&T and Sprint have also expressed interest in reducing smartphone subsidies. The subsidy model has been expensive for carriers, but in return carriers earn more revenue through customers who consume more voice and data with more capable devices. Rival Sprint Nextel was heavily criticized for bringing the costly iPhone to its network as Sprint would have to shoulder the up-front subsidy costs; it’s estimated that it’s only after 8-12 months does Sprint see a return on this investment from two-year contract customers.