Verizon (NYSE: VZ) is offering to pay the early termination of fees (ETFs) of users who switch to the carrier, a possible indication that similar efforts by Verizon's competitors may be eating into its subscriber base.
The nation's largest carrier said it will give as much as $650 to users who end their existing contracts and port their numbers to Verizon, buy a new LTE smartphone with a payment activation and trade in their current handsets. Users who switch will receive the money in the form of a prepaid card for the installment plan balance minus the device trade-in value. The trade-in handset must be in good working condition and users must keep the new line active for at least six months.
Additionally, new users who choose Verizon's XL or XXL plan will receive an extra 2 GB of data monthly for as long as the device is active on the carrier's network.
The nation's smaller tier-one operators have increasingly turned to ETF-payoff promotions to poach competitors' customers as the U.S. wireless market reaches saturation and churn levels wane. Those promotions can be highly effective in growing a subscriber base, but the payouts can damage carriers' bottom line in the short term.
T-Mobile (NYSE:TMUS) demonstrated this early in 2014, when its aggressive ETF-payoff campaign helped it add 1.3 million postpaid subscribers but also cost roughly $100 million. Nonetheless, Sprint (NYSE: S) followed T-Mobile's lead earlier this year with a similar campaign.
Until now, Verizon has opted to remain above the ETF-payoff fray, opting instead to tout its network coverage and performance. That strategy has had mixed results over the past 12-18 months: after seeing little postpaid subscriber growth in the first quarter of 2015, in the second quarter the operator added only 321,000 new postpaid phone users -- less than half of T-Mobile's net adds. Verizon rebounded in the third quarter, though, with nearly 700,000 postpaid smartphone net adds -- just behind T-Mobile -- and an ARPU of nearly $51, tops among the major carriers.
But Verizon's move to offer to pay off ETFs could be a response to a slowdown in the carrier's more recent performance.
Postpaid smartphone owners have long been the most lucrative and highly prized users in the U.S. mobile market, and they've become even more valuable as the growth of smartphone penetration slows to a crawl. With the new promotion, Big Red may be signaling some vulnerability in a highly competitive market.
- see this Verizon press release
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