Verizon Communications Inc. (VZ) dropped its plan to institute fees on making one-time bill payments following strong criticism from customers.
The largest U.S. mobile service provider was compelled to take this move right after the day it introduced a fee known as “convenience fee” of $2 for making one-time payments over the phone or online using credit or debit cards. The effective date for the fee was January 15.
The company wants to encourage customers to take advantage of the numerous simple and convenient payment methods, which are free. Verizon had proposed the fee in order to pressure customers to enroll in an automatic payment option, which ensures payments on time. Verzion was thinking of following the same trend as Internet service providers like Comcast Corporation (CMCSA) that charge fees for phone payments.
Nevertheless, customers started complaining of higher charges and threatened to even leave their Verizon services. The company then promptly withdrew the fee.
Verzion’s immediate cancellation of fees remind us of the situation when Bank of America Corp. (BAC) was forced to call off its proposed $5 debit card fee in response to customer backlash. A number of other large financial institutions such as Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM) reacted in the same manner.
Other telecom companies like AT&T Inc. (T) and Sprint Nextel Corp. (S) do not charge any fee similar to the one that Verizon had. Notably, Sprint charges $5 as a monthly fee to certain customers who have accounts with spending limits if they are not enrolled in automatic payments. T-Mobile charges $5 from customers for making payments over the phone.
We find Verizon suffering a number of failures in recent times. Verizon Wireless, a joint venture between Verizon and Vodafone Plc (VOD), had experienced three service outages to its new 4G network last month, denting its reputation for network quality. The fee proposal hurt the company’s brand image further.
December 2011 brought tough times for Verizon following weakening consumer confidence with regards to delivering proper networking and cheap plans.
While awaiting the actual loss that Verzion has made due to service outages and bill fee proposal, we are maintaining our long-term Neutral recommendation on the stock. The stock retains the Zacks #3 (Hold) Rank for the short term (1-3 months).
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