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NEW YORK–Verizon Wireless will keep its $30 unlimited data plan for the iPhone, Lowell McAdam, chief operating officer of Verizon, said today at the company’s quarterly investor meeting.
The Wall Street Journal first reported McAdam’s comments ahead of Verizon’s quarterly earnings conference call this morning. And the company confirmed it here at an event for investors and analysts. But the plan will only be offered for a limited time before the company moves to a usage-based billing model.
“I’m not going to shoot myself in the foot,” he told the Journal. He said that not offering an unlimited plan would put up a barrier for customers who want to leave AT&T. In June, AT&T changed its data service offering and eliminated the unlimited data plan for new customers. Now new customers are required to buy one of two capped services: $25 for 2GB of data or $15 for 200MB of data per month.
While new customers at AT&T are not able to get an unlimited data plan for any smartphone, customers on contract with AT&T before June were grandfathered in to the plan.
Even though Verizon has talked about offering a usage-based tiered pricing service, changing the policy would likely prevent many existing and longtime AT&T iPhone users from switching to Verizon.
But the unlimited plan will not last for long. The company clarified its position on the unlimited data plan after its investor conference, stating that the iPhone unlimited data plan will be available for a “limited time.” Verizon representatives declined to provide details about how long the window would last. But after the offer ends, Verizon will be moving to a usage-based billing model that is similar to what AT&T offers today. Verizon still hasn’t disclosed pricing for its 4G LTE handsets, which are set to hit store shelves in the first half of 2011.
As for how long customers will get to keep their unlimited data plans, according to a Verizon spokeswoman, the unlimited plan will only be offered for the contract period. After the contract expires and customers buy a new device, they will be subject to whatever rate plans are available when they upgrade their phones.
“For example, a customer purchases an iPhone 4 or a Droid X along with the $29.99 data plan,” the representative explained. “This person’s contract expires February 10, 2013, but they love their device so much they never come in and purchase another device. They continue to pay us monthly and we continue to bill them for the exact same services. We don’t change their plan. Now let’s say in 2014, they want a new phone and they come in and purchase a new phone, then they subscribe to whatever service is offered at that time and pay that price.”
This is different from AT&T’s current data plan policy, which allows anyone who subscribed to an AT&T unlimited data plan before June 2010 to keep that unlimited plan, if they haven’t altered the plan, even after their contract ends and they upgrade to a new phone.
At its earnings conference today, executives also said that the company will discontinue the $15 data plan for smartphones that offers 150MB per month.
The new Verizon CDMA iPhone will go on sale February 10. And it’s expected to be a hot-selling item. Verizon executives did not provide exact projections for iPhone sales, but they say that analyst estimates of 11 million new subscribers for the iPhone are likely accurate.
Part of the reason that Verizon executives said it’s difficult to provide more precise guidance on sales is because the company is unsure about demand for the device as well as supply from Apple and its component providers. Last year, the company experienced back orders on some Android smartphones because there were shortages of screens and basic components. That said, McAdam said he felt comfortable that the company would hit projections that analysts have predicted.
“We are giving you as much guidance as we can,” said Verizon CEO Ivan Seidenberg, during a question and answer session at the conference. “There are lots of unknowns. We think we know how many people will switch from AT&T to us. But we don’t know. We do believe our brand and network will drive a lot of people.”
Seidenberg said that he believes the company will “probably do better than most people think” when it comes to iPhone sales.
As Seidenberg mentioned there is pent-up demand among existing AT&T iPhone customers for the iPhone on Verizon. These customers are likely to be people looking for better network quality. Verizon, which has had strong performance in terms of network quality, has been preparing for the additional capacity from the iPhone for the past year, executives said. McAdam said during his presentation that Verizon has been doubling 3G capacity for its network every year.
“The 3G network has been and will continue to be important,” he said.
But Verizon executives also said that they expect to sell a large number of iPhones to the company’s existing base of subscribers. At the end of the fourth quarter only about a quarter of Verizon’s subscribers were using smartphones. McAdam said he expects that number to double to at least 50 percent by the end of 2011.
While Verizon will be adding large numbers of smartphone subscribers, who are expected to spend about double what typical feature-phone customers spend, Verizon will pay a price for adding these customers. The reason is simple: these devices are heavily subsidized. In fact, Fran Shammo, Verizon’s CFO, pointed out that the addition of the iPhone and the subsidy that Verizon will pay to offer the device to new customers will cut into profits over the next year. Even though average revenue per user will grow substantially, earnings per share are only expected to grow in the 4 percent to 8 percent range, he said.
Still, Verizon expects to maintain profit margins in the 47 percent range despite the launch of the iPhone.
Verizon Wireless also plans to change a number of sales policies. It has already announced that it will ditch its “New Every Two” promotion where subscribers can get credit toward a new phone every two years. The company is also changing its return policy from 30 days to 14. And finally, the company will work with a third party to offer a new trade-in program that will allow consumers to turn in phones early and get credit toward a new phone.
Update 12:59 p.m. PT: This story has been updated several times with additional information about Verizon’s unlimited data plan. The plan, which was confirmed for the iPhone, will be a temporary offer.
