Verizon Wireless (NYSE: VZ) made changes to its Edge handset upgrade program that require customers to pay off 60 percent of a device's costs before upgrading, up from 50 percent before. The changes come as analysts are predicting that more devices will be financed in the U.S. in 2014 than previously expected.
The changes to Verizon's program went into effect June 1. Verizon also now will make the program spread the device financing costs over 20 months instead of 24, which should both increase customers' monthly equipment costs and payments to Verizon but also allow them to pay off their device faster.
Verizon customers who use Edge can upgrade as soon as 30 days as long as 60 percent of the smartphone is paid off, and they also get discounts on their monthly service pricing, depending on how much data they are paying for. Customers using Edge prior to June 1 will still have the 24-month term, until they upgrade using Edge or get a new smartphone.
"It's an evolution of the program, and we've said we would make updates along the way," Verizon spokeswoman Debi Lewis told FierceWireless.
AT&T Mobility (NYSE: T) noted in its first-quarter earnings that the adoption rate of its Next handset upgrade program was 35 percent in the period. Verizon said the adoption rate of Edge in the first quarter was less than 15 percent but the company expects that to potentially double into the second quarter with the launch of Edge in Verizon's indirect channel.
Lewis declined to speculate on how the changes will affect Verizon's Edge adoption numbers, but noted that the program is "designed for customers who want to upgrade and get new smartphones sooner than with traditional two-year contracts (which we still offer for those customers who want to go that route, too… )."
Meanwhile, analysts at Jefferies wrote in a research note that equipment installment plan adoption is higher than previously thought, with 43 percent of devices sold on EIP plans. "We now forecast ~45% uptake of national carrier device sales in 2014, up from just 30% three months ago," they wrote, noting that new phone launches, like a new iPhone, could push the figure even higher.
Tier 1 carriers have increasingly embraced such plans, which shift revenue from service revenue to equipment revenue by removing the up-front cost carriers pay to subsidize smartphones. Yet smaller carriers such as U.S. Cellular (NYSE:USM) have also embraced installment plans--indeed, regional player nTelos Wireless intends to launch an installment plan this summer.
With increased EIP adoption, the Jefferies analysts forecasted that Tier 1 carriers will finance around $24 billion worth of devices during 2014 and $39 billion during 2015. "While cash-strapped carriers have securitized service receivables, we would not be surprised if carriers, including AT&T, factored their sizable equipment receivable balance," the Jefferies analysts wrote.
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