Confronted by the ever-growing challenge to attract and retain customers, Verizon Communications Inc. VZ has finally entered the competitive race. The carrier is now offering a promotional credit of up to $650 that will cover switching costs (like early termination fees) for existing Sprint Corp. S, T-Mobile US Inc TMUS and AT&T Inc T customers, who seek to change over to its services. In addition, the carrier is giving away a bonus of 2GB data per month, subject to selection of plans that have a data cap of 12 GB or more.
Verizon is currently the leading telecom provider in the U.S. in terms of subscriber count. However, in recent times, the carrier faced fresh hurdles in the form of attractive promotional offers from its rivals, aimed at poaching its subscribers. Until now, Verizon had not been responding to such competitive moves from its peers.
What’s on Offer?
Per the offer, upon switching from a different carrier and purchasing a new 4GLTE device from Verizon, eligible customers will be offered up to $650 in credit, that will take care of the device’s trade-in value (if applicable) and other switching costs such as early termination fees and the like. For a device trade-in, subscribers will be required to exchange eligible devices in working condition. Switching customers must keep the connection active for a minimum of six months to make themselves eligible for the offer.
Switching Costs: Strategic Target
In general, a high switching cost in any industry implies higher customer retention. Customers purchasing new flagship devices on contract from telecom service providers will not tend to switch to rival carriers easily within the stipulated time period owing to existence of high termination fees and other related charges. This has been the primary strategy prevalent among wireless carriers, which has allowed them to retain subscribers and generate revenues in the process.
However, with the U.S. market fast reaching saturation, telecom operators are now increasingly focusing on luring customers of other carriers to achieve revenue growth. The preferred way of doing this is to pay off the termination charges and other related charges of the old carrier, thus facilitating the process of transition. This has led switching costs in the industry to decline in recent times. For instance, Sprint makes a generous offer to pay off switching costs, including early termination fees, the balance of smartphone installments and other charges, for customers willing to change over to its service. AT&T and T-Mobile too have similar albeit less grand offers.
The Bottom Line
Verizon boasts the highest subscriber count in the U.S. wireless space, closely followed by AT&T. T-Mobile too is gaining ground and vying for the top spot. In such a scenario, Verizon cannot afford to rest on its laurels and is thus striving to fend off rising competitive threats from its rivals. Moreover, going by several recent customer surveys, Verizon enjoys a high consumer preference, thanks to a superior network quality and performance compared with its peers. We believe offers like this will bode well for the company further, going forward.
Verizon presently carries a Zacks Rank #3 (Hold).
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