Feature Article

June 21, 2013

ABI Research: Verizon Wireless Subject to Highest US Subsidies for Mobile Devices

According to Stuart Carlaw, chief research officer at ABI Research, “Subsidies are a prime battleground for carriers in the U.S. market. Recent competitive moves from carriers like T-Mobile mean that the conflict between OEMs looking to maintain or grow ASP through feature creep and operators looking to shore up margins and reduce subsidy is about to enter a new phase.”

Feature creep is the ongoing expansion or addition of new features in a product. These tend to be extra features that go beyond the basic function of the product.

A new study from ABI Research reports that Verizon Wireless’ handset line-up receives the highest U.S. implied subsidy. An average of $447 goes to Verizon Wireless handsets. This is more than $40 per device than what the rest of the industry averages. It is also $114 more than the average device offered by U.S. Cellular Wireless.

As the smartphone markets mature, service revenue reaches a plateau. This causes the total traffic generated by advanced devices to eat into the company’s profits. That is why handset subsidies are quickly becoming one of the major focus items for carriers.

Image via Northfoto / Shutterstock

Device capabilities need to be taken into consideration when looking at the results of ABI Research’s report. There does seem to be clear opportunities to improve business performance through a more targeted approach to subsidy offerings.

As a follow-up, senior practice director for devices Nick Spenser made the following comments, “Operators need to focus on retaining and acquiring profitable customers, rather than continuing to obsess about market share, but handset offers remain the key driver of customer churn. Verizon Wireless clearly feels it has the right combination of efficiency and scale to ensure the majority of these aggressively subsidized contracts offers will provide a profitable—or at least break even—customer lifetime value by the end of the contract.”

In another recently released report, ABI Research shows that more subsidies are seen in devices that are powered by Qualcomm. That report sees Qualcomm receiving an implied subsidy of $530, which is $189 more than other companies receive.

You can see how the battle for U.S. subsidies is important to these companies. They all want to be able to offer good, realistic deals to their customers, but at the same time, if it eats into their profits then it would be a losing deal.

Edited by Alisen Downey

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