Verizon Wireless is now charging a $30 upgrade fee when customers switch to a new phone, up from the previous fee of $20. The $30 upgrade fee must be paid “if you purchase a new device at retail price or through [Verizon’s] device payment program,” Verizon notes.
The fee increase went into effect on January 5. In another change last week, Verizon stopped offering two-year contract renewals and device subsidies to existing customers (Verizon had already stopped offering contracts and subsidies to new customers).
When asked why the upgrade fee was raised, a Verizon spokesperson told Ars, “These fees help cover increased cost to provide customers with America’s largest and fastest 4G LTE network.”
But Verizon’s wireless capital expenditures have decreased, according to the company’s latest earnings report. In Q3 2016, Verizon Wireless capital expenditures were $2.77 billion, down from $2.92 billion in Q3 2015, a decrease of 5.1 percent. The decrease was even bigger when looking at the first nine months of 2016. In that period, Verizon Wireless capital expenses were $7.78 billion, down from $8.47 billion for the first nine months of 2015, a drop of 8.2 percent.
Verizon’s total wireless operating expenses also declined more than 5 percent between 2015 and 2016. Verizon’s wireless operating revenue also declined in 2016, a fact that may help explain the fee increase.
We asked Verizon today to clarify what it means by “increased cost” and whether it is referring to future increases instead of current spending. We’ll provide an update if we get one.
(UPDATE: After this story published, Verizon responded that it was referring to “ongoing costs to maintain and enhance the network,” but did not provide any further details.)
In the company’s latest earnings call in October, Verizon CFO Fran Shammo said Verizon is “spending our CapEx around wireless for LTE densification” to cover increased use of streaming video. “We see that continuing to increase, so we are really preparing for two years out from where our usage is today so we are densifying the network,” he said. Verizon has already launched LTE Advanced service to more than 90 percent of the US population and is “pre-positioning for 5G technology,” Shammo said.
The $30 upgrade fee must be paid each time a customer gets a new phone to replace one on an existing line of service and is separate from the activation fee that is charged when a customer establishes a new line of service. The upgrade fee is refunded if customers return the device within 14 days of purchase.
Even at $30, the fee is still lower than the $40 upgrade fee previously charged to customers who sign a new contract and buy a device at subsidized rates. Verizon stopped offering contracts and device subsidies to new customers in 2015, but at the time it said existing customers could continue renewing two-year contracts and purchasing phones at subsidized prices. With Verizon’s changes last week, the exception for existing subscribers is coming to an end. Verizon customers who switch phones and don’t want to pay full price up front would need to sign up for monthly device payment plans that spread the cost of a phone over 24 months.
For consumers, there are apparently no exceptions to the new rule preventing existing customers from renewing contracts and getting device subsidies. “Two-year agreements are no longer an option, but you can still choose device payment plans with affordable monthly payments and zero percent interest,” Verizon told Ars. This change does not apply to enterprise and government customers, Verizon said.
While the 24-month device payment plan does not require a contract, it has some similarities to the traditional two-year contracts. When a customer pays off the entire cost of the device, the monthly device payment goes away, effectively lowering the overall monthly bill. Customers who purchased subsidized phones also get a bill reduction after their two-year contract is up. That’s because Verizon charges a $40-per-month “access charge” to customers with subsidized devices but lowers that payment to $20 when the contract expires. For customers on device payment plans or who own their phones outright, the monthly access charge is $20 from the start.