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Verizon Scraps Unlimited on Upgrade

Zacks Equity Research

The wireless leader Verizon Communications Inc. (VZ) is slowly scrapping its unlimited data plans. Verizon puts a cap on its unlimited data plans with smartphone upgrade.

The company abolished unlimited data plans for all customers, who intend to upgrade their smartphones with the new high-speed data services (4G) at a discounted price. Verizon allows full price-paid customers to keep its unlimited plans with a flat monthly fee of $30. However, these customers have to shift to the shared data plan, when it becomes available in mid summer.

Customers are disappointed with this policy, as it compels them to pay more either in the form of service fees or smartphone prices.

On the other side, the move would be beneficial to Verizon. As the cell phone markets are saturated and customers are hungrier for data rather than voice, the new strategy will boost the company’s future data revenues. The company will also be able to pass on some subsidy cost related to Apple Inc.‘s (AAPL) iPhone to its customers in the form of service fees. This will lead to reduced expenses.

Verizon had already switched to tiered-data pricing plans from the unlimited data plans in June last year. However, the old and existing subscribers are still using the unlimited plans. Verizon is the first carrier, which is scrapping its unlimited plans for its existing customers.

Its major rival AT&T Inc. (T) still offers unlimited plans on smartphone upgrade but with certain limits, imposed two months ago. AT&T said that the data speeds on unlimited 3G and 4G smartphones would slow down when it exceeds more than 3 gigabytes (GB). The 4G LTE speeds will also lessen beyond 5GB in a particular month. The third largest U.S. wireless provider Sprint Nextel Corp. (S) continues to offer unlimited plans when subscribers upgrade their smartphones.

We are maintaining our long-term Neutral recommendation on Verizon. Currently, the stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).

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