The era of the $199 smartphone is finally over. Verizon, the last holdout among the major wireless carriers, said on Monday that it had eliminated the option of subsidized phones with a tw- year contract for all its retail customers.
The carrier stopped offering that deal to new customers back in August 2015, but was still allowing existing customers to renew expiring contracts in return for a big phone subsidy until last week. Now customers who want to upgrade to the latest Apple iPhone, Samsung Galaxy, or other models will have to pay full price—either all at once upfront or over two years in monthly installments.
The move away from phone subsidies, which started with T-Mobile (TMUS) in 2013, has prompted customers to keep their devices for longer and depressed the rate of phone upgrades. It also saves the carriers big bucks. The subsidized $199 price customers paid for a new iPhone covered less than one-third what Apple charged. Some of those savings have been passed along to customers in the form of lower monthly rates.
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The total phase-out of the old plans will help Verizon catch up to its competitors, which eliminated subsidies for all customers sooner. Verizon said its new policy did not apply to enterprise or government accounts.
Even after Verizon (VZ) had announced slightly cheaper monthly plans in 2015 that didn’t come with subsidized phones or require a two-year contract, existing customers were allowed to stick with the old model and many did. Only about 60% of Verizon’s regular monthly customers, known as postpaid customers in the industry, were on unsubsidized plans at the end of the third quarter. AT&T (T), which stopped offering discounted phones with two-year contracts a year ago, reported 80% of its customers were on unsubsidized plans at the end of the quarter.
The move could also further the growth of cheaper smartphones. Chinese brands like Huawei and Blu are gaining rapidly in the U.S. market as phone subsidies fade. Huawei’s 5X and Blu’s Life One X model sell for under $200 each, but they have features similar to phones from higher-end brands like Apple (AAPL) and Samsung.