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Verizon Expands Edge Payment Plan, Posts Q1 Gains

Bedminster, N.J. – Verizon Wireless has begun expanding its Edge installment-payment plan for no-contract unsubsidized cellphones to the indirect channel, potentially doubling the carrier’s Edge take rate in the second quarter, Verizon Communications CFO Fran Shammo said.

Shammo revealed the plan in a conference call to investors, outlining the company’s first-quarter gains in wireless revenue, wireless operating margin and wireless operating margin.

The number of Edge activations in the quarter rose sequentially and exceeded expectations, Shammo said. The plan, he said, “has a favorable impact on profitability” by eliminating phone subsidies. He called the installment plans “very profitable.”

Edge expansion to the indirect channel began at the end of the first quarter.

In the first quarter, less than 15 percent of retail postpaid customers activating a postpaid smartphone opted for the Edge plan. The share of retail postpaid smartphone subscribers currently on Edge is less than 2 percent, Shammo said.

Though the Edge take rate rose in the quarter, the rate was well behind the take rate for AT&T’s Next no-contract, unsubsidized-phone program. AT&T activations of smartphones under the Next program accounted for 40 percent of all postpaid smartphone gross adds and upgrades, up from 15 percent in the fourth quarter, AT&T said yesterday.

Lowered pricing of monthly Edge installment payments contributed to Verizon’s higher take rate, the company said, as did a decision to let out-of-contract subscribers move to the Edge program.

Verizon’s direct-sales force, Shammo noted, is not compensated to drive Edge plans over contract plans with subsidized phones. “Edge is a customer choice,” he said. Verizon “allows customers to choose the right plan for them.”

Edge participation requires adoption of the carrier’s More Everything service plan, which in the quarter accounted for 50 percent of all postpaid accounts, up from the previous quarter’s 46 percent.

In the quarter, Verizon didn’t see an increase in phone replacement rates because of Edge, but Shammo said Edge’s impact on the replacement rate won’t be known for another six to eight months.

In outlining financial results, the company said Verizon Wireless posted a 6.9 percent gain in wireless revenues in the first quarter, a 14 percent gain in wireless operating income, and operating margin growth to 35 percent from a year-ago 32.9 percent and a fourth-quarter 29.5 percent.

Average revenue per account rose 6.3 percent to $159.67.

The gains came despite a drop in retail net adds compared to the year-ago quarter, sharper pricing on its More Everything service plans, and sharper Edge installment-payment prices.

Operating-income growth, however, slowed from the year-ago quarter and from the fourth quarter.

Revised pricing, Shammo said, reflected a “rational disciplined approach” to first-quarter competition.

For the quarter, wireless revenues rose 6.9 percent to $20.9 billion, and wireless operating income rose 14 percent to $7.3 billion.

In the year-ago quarter, wireless revenues were up a similar 6.8 percent, but wireless operating income grew at a faster 23 percent rate.

In the fourth quarter, wireless operating income grew at an even faster rate, up 30 percent on a 5.7 percent revenue gain.

Verizon’s first-quarter wireless-revenue growth matched AT&T’s in the quarter, but Verizon’s wireless operating income growth exceeded AT&T’s 8.1 percent gain.

In retail net adds (prepaid and postpaid), Verizon’s net adds fell 23.8 percent to 549,000 on a 20 percent drop in postpaid net adds to 539,000 and a 77 percent drop in retail prepaid net adds to 10,000. In the year-ago quarter, net adds fell only 1.9 percent, but in the fourth quarter, they fell 26.3 percent.

Verizon’s first-quarter retail net adds, however, almost matched AT&T’s total retail net adds of 625,000.

Verizon’s gain in retail postpaid net adds included a loss of about 138,000 postpaid phone subscribers. The loss was offset, however,by strong gains in postpaid tablet subscriptions.

In tablets, Verizon posted strong gains in postpaid tablet net adds, with 634,000 postpaid tablet net adds marking one of the carrier’s best quarters for tablet activations. The net adds brought Verizon’s postpaid tablet base to 4.3 million.

Cellular-equipped tablets will be a major growth category for the wireless industry and represents a “very underpenetrated marketplace,” Shammo said.

The carrier didn’t break out connected-device and reseller net adds.

In other metrics, Verizon said retail postpaid device activations (gross adds and upgrades), including phones and data devices such as tablets, rose to 9.9 million from a year-ago 9.7 million. Of those, 85 percent were phones, the company said.

Verizon also reported 7.6 million postpaid smartphones were activated in the quarter, up from the year-ago 7.2 million and exceeding AT&T’s first-quarter 5.8 million. Almost 90 percent of the activated smartphones were 4G phones, bringing

Verizon’s 7.6 million postpaid smartphone activations in the quarter compared to the fourth quarter’s 9.8 million and the second and third quarters’ 7.5 million and 7.6 million postpaid smartphone activations, respectively.

4G devices represented 49.3 percent of all postpaid connections (phones, tablets and other devices), up from the fourth quarter’s 44.1 percent.

Fifty percent of postpaid customers are on shared-data plans, with a majority sharing 4GB or more of data.