Verizon Communications Inc. (VZ): Did You Catch This Move?

Sometimes rooting for the underdog can pay off. Those types of bets typically offer generous odds from the house, but the reason why Verizon Communications Inc. (NYSE:VZ) Wireless wants Microsoft Corporation (NASDAQ:MSFT) and BlackBerry to succeed isn’t because it will benefit directly. Instead, Big Red is hoping that increased platform competition will translate into device pricing pressure, which in turn leads to lower subsidy costs.

At an investor conference, Verizon Wireless CEO Dan Mead said that both Windows Phone and BlackBerry have important opportunities ahead of them.
Verizon Communications Inc. (VZ)BlackBerry still has a lot of loyal users on Verizon Communications Inc. (NYSE:VZ)’s network, and Mead wants to address their needs. The company has also been beefing up its Windows Phone lineup, and is expected to launch a new Nokia Corporation (ADR) (NYSE:NOK) Lumia 928 next week.

Including Apple Inc. (NASDAQ:AAPL) iOS and Google Inc (NASDAQ:GOOG) Android, there are now effectively four platforms. Mead notes, “Three to four operating systems is good for the industry and good for us.” Since the iPhone carries the priciest subsidies, Mead also points out that reducing subsidy costs is an “active area” for the No. 1 wireless carrier.

If Verizon Communications Inc. (NYSE:VZ) wants to spread out its user base, it still has a lot of work to do. According to Kantar Worldpanel Comtech’s most recent figures, iOS and Android comprised 94.3% of smartphone sales last quarter.

OS Platform Q1 2012 Q1 2013
iOS 52.4% 45.7%
Android 44.7% 48.6%
RIM/BlackBerry 2.2% 0.4%
Windows 0.2% 5.1%
Other 0.5% 0.2%

Source: Kantar Worldpanel Comtech.

At the same time, Verizon’s ability to nudge consumers one way or another is somewhat limited, and it decidedly does not want to have its sales reps pressure prospective buyers one way or another. This is why Verizon Communications Inc. (NYSE:VZ) doesn’t incentivize sales reps to prioritize specific devices, and instead focuses on reps that are well educated on the strengths and weaknesses of each platform. Verizon does incentivize sales reps to upsell on pricing plans and bigger data packages, but is relatively agnostic with regards to devices so long as the consumer is happy.

Since Verizon Communications Inc. (NYSE:VZ) offers a 30-day guarantee, if a consumer is pressured into buying a phone that they don’t like and subsequently return it for a new device, Verizon has just subsidized two smartphones for one subscriber, which is rather counter-productive to the whole “reduce subsidies” goal. It can’t resell the returned device as a new phone, and just paid a subsidy to the OEM for a smartphone that it now has to deal with selling as used or refurbished. Verizon would certainly prefer consumers to pick an Android over an iPhone, but returning a device is a worse outcome.

All Big Red can do is root for the underdogs and hope that competitive market forces chip away at device pricing.

The article Verizon Is Still Rooting for the Underdogs originally appeared on and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications Inc. (NYSE:VZ). The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT).

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