NEW YORK (Dow Jones)--Verizon Wireless is expanding its slate of expensive smartphones priced at nearly $300 each with a two-year contract, betting that customers will be attracted by the carrier's reputation for network quality and its high-speed, mobile-broadband network.
The latest addition is the hotly anticipated Galaxy Nexus from Samsung Electronics Co. (005930.SE, SSNHY). The carrier will start selling the device this month for $299.99 with a two-year contract, according to people familiar with the matter. That follows the introduction of HTC Corp.'s (2498.TW, HTCXF) Rezound and Motorola Mobility Holdings Inc.'s (MMI) Droid Razr, both priced at a penny under $300 with a two-year contract.
The costly devices are helping Verizon carve out a niche for itself at the top of the market, as carriers have slashed smartphone devices down to being free on the low end. Rivals AT&T Inc. (T) and Sprint Nextel Corp. (S) offer several devices online at no cost, such as the iPhone 3GS and Samsung Conquer 4G.
"It used to be that $199 was the top of the heap, the most you were going to pay," said Charles Golvin, a Forrester Research analyst. "Verizon clearly believes that with their 4G network coverage and reputation they can appeal to a segment that will pay a little more for the latest and greatest."
Representatives for Verizon Wireless and Samsung declined to comment.
Forcing the customer to pay a higher price upfront means Verizon Wireless is paying a lower subsidy, which is the difference in price that Verizon Wireless pays manufacturers from what consumers pay for the phone when they accept a contract.
For the Rezound and Droid Razr, Verizon Wireless's subsidy is $350 per device, based on the full listed price for the handsets. In contrast, the iPhone 4S carries a $450 subsidy, like AT&T's Samsung Galaxy S II Skyrocket 4G phone. And Sprint subsidizes the HTC Evo 3D to the tune of $500 in a current Web promotion.
The subsidy amount is based on prices listed on the carriers' websites; actual amounts may vary based on bulk purchases.
The strategy, though, is risky as carriers are battling over an ever-smaller piece of available market share, with wireless connections now outpacing the number of Americans. By offering a higher subsidy, carriers hope they can entice existing customers to upgrade from older smartphones and agree to a multi-year contract.
The Galaxy Nexus--jointly developed by Samsung and Google Inc. (GOOG)--has been hotly anticipated since it was announced in October. It uses Google's Ice Cream Sandwich Android platform, which can run on both tablet computers and smartphones, and is enabled to make payments by waving the device in front of a receiver at a store checkout.
The device will be important for Samsung as well, as it seeks to take HTC's crown as the top smartphone seller in the U.S. Samsung shipped 4.9 million smartphones in the third quarter, 800,000 fewer than HTC, according to research firm Canalys.
Like other nearly $300 devices, the Nexus works off the zippier 4G service known as LTE that Verizon is rolling out to a broad swath of the U.S. With LTE's download speeds, customers may be more enticed by smartphones that pack in more features, such as bigger screens and faster processors, Golvin said.
Verizon's LTE will cover at least 200 million Americans by year end, compared with 70 million for AT&T. Sprint is in the early stages of erecting its own 4G LTE network, though it sells devices today using the 4G WiMax network from Clearwire Corp. (CLWR).
Shares of Verizon Communications Inc. (VZ)--which co-owns Verizon Wireless with Vodafone Group PLC (VOD.LN, VOD, VODPF)--closed up 20 cents, or 0.5%, at $38.05, on Monday.
-By Greg Bensinger, Dow Jones Newswires; 212-416-4676; greg.bensinger@dowjones.com
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