Verizon CEO says he's open to dropping contracts

CEO Lowell McAdam says the company could easily shift to the model if consumers begin demanding it.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
2 min read
Verizon CEO Lowell McAdam. James Martin/CNET

Verizon CEO Lowell McAdam cracked open the door to a full no-contract wireless world.

McAdam said it was "pretty easy" to change up the model to eliminate contracts, and added that he would watch the consumer response that T-Mobile gets from its recent decision to drop contracts and phone subsidies altogether. He indicated a willingness to follow suit if consumers start asking for it.

"I'm happy when I see something different tried," McAdam told reporters on the sidelines of an event to raise awareness for Verizon's "Powerful Answers" initiative today. "We can react quickly to consumers' shifting needs."

T-Mobile attempted to shake up the industry last week when it said it would drop contracts and phone subsidies entirely in an attempt to provide more transparency for its options. Instead of a two-year contract, consumers would pay a smaller upfront fee for the phone, and pay an additional fee each month until the phone is paid off.

The consumer reaction has been mixed, underscoring the work that T-Mobile has to do to educate potential customers. While the overall cost over two years under the new T-Mobile plan is lower than its competitors' offerings, some see the need to pay for the entire phone as a commitment and another form of a contract.

Verizon Wireless does offer its phones without a contract but requires the consumer to pay the full price of the phone upfront. For instance, a 16GB iPhone 5 costs $200 with a two-year contract and subsidy but $650 without a contract. The option isn't heavily promoted by the carrier.

Despite their having to pay for the phone, T-Mobile argues that consumers save money over the life of the contract because the service fees are lower under its plans.

McAdam isn't the only one to express his interest in the area. AT&T CEO Randall Stephenson said in January that he had entertained the idea of making consumers pay for their own smartphones in exchange for a lower rate.

Carriers have reason to hate subsidies too. While the contracts bind consumers to the carrier for two years, the subsidy portion often takes its toll on the profitability of the business. The carrier is fronting the cost of the phone so consumers will stay with them. A product like the iPhone, which analysts have estimated requires a heftier subsidy than normal, has a large impact on the carrier's earnings, particularly during a quarter in which a lot of iPhones are sold.

McAdam was at an event in New York to talk about the company's contest to spur the development of an app, service, or feature that runs on Verizon's network and benefits either education, health care, or environmental sustainability. The company today kicked off this "Powerful Answers" contest, in which Verizon plans to give out $10 million in award money as an incentive for the right enterprising ideas.