Verizon CFO: Abandoning subsidies would be a mistake

Though carriers have moved more agressively to offer installment plans to subscribers, Verizon's CFO still sees risk in that area.

Verizon has dipped its toes in the installment plan option with its Edge program, but the carrier's CFO sees the subsidy model as still the safer option.

In a presentation Monday at a Deutsche Bank conference, Verizon Communications Chief Financial Officer Fran Shammo talked about the intricacies of offering customers subsidized phones versus those paid off via an installment plan. Verizon's Edge program does give subscribers the ability to pay off the full price of a mobile device in installments. Launched last July, Edge follows pricing options similar to those found in AT&T's Next and T-Mobile's Jump.

Despite the introduction of Edge, the traditional subsidized phone plan is likely to remain Verizon's best bet, according to Shammo. The installment plan will continue to be another option, though one that does pose certain risks.

"We believe that the subsidy model is an extremely good model. It has done wonders for us in this industry," Shammo said. "So I think to abandon that I think is a mistake. But I do think that there are customers out there that want that installment sale."

However, those installment sales can lead to problems, Shammo explained. Customers who opt for an installment plan and then jump ship early are saddled with a large bill to pay off the phone in full. In that case, the customer isn't going to be very happy about that huge payment.

Many may simply decide to give back the phone instead of paying it off. And if a customer leaves the carrier due to dissatisfaction with the network, then the chance of that person paying the early termination fee is "probably next to nil," Shammo said.

Either way, the carrier comes out on the losing end. That's one reason why Verizon limits the Edge program to customers more likely to pay the bill.

"So there is a lot of risk with the installment sale that has to be monitored." Shammo said. "So I think as a carrier for us, we are approaching it, we're giving our customers all the options. But we do require very high creditworthy customers to go on to our Edge program."

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