Must-read: Why Verizon is able to maintain low churn rates

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Aug. 29 2014, Updated 5:00 p.m. ET

Tablets help Verizon with a lower churn rate

In the previous part of this series, we discussed increasing video usage on tablets and smartphones, which helps companies like Verizon (VZ) in additional data revenues. But tablets help Verizon in another way.

During the conference call to announce 2Q14 earnings, Verizon’s management mentioned that tablets have lower churn rates than smartphones. During the quarter, Verizon added 1.15 million postpaid tablets compared to only 0.3 million postpaid smartphones. This helped in Verizon’s retail postpaid churn rate to decline from 1.07% in 1Q14 to 0.94% in 2Q14.

Verizon’s trying to reach out to out-of-contract customers to reduce churn rates

Verizon’s churn rate is better than T-Mobile’s (TMUS) and Sprint’s (S) among U.S. telecom providers. As the chart above shows, only AT&T’s (T) churn rate is better than Verizon’s.

In addition to the tablet factor, there’s another reason why Verizon is able to maintain its low churn rate.

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Verizon has started to cautiously reach out to out-of-contract customers to move them over to its EDGE program. Out-of-contract customers are the customers who have finished their two-year contracts with Verizon and are free to move to other telecom provider. If customers move out, this will increase the churn rate for Verizon. Moving these customers over to the EDGE program helps Verizon retain these customers.

EDGE is a flexible plan for customers who want to upgrade their devices faster or who don’t want to pay the upfront cost of their devices. Under this plan, users can upgrade their smartphones if they pay 60% of the retail cost of their smartphone in as soon as 30 days. For example, you can upgrade your existing smartphone to Apple’s (AAPL) iPhone 6 as soon as it launches next month if you’re an existing EDGE customer and have paid 60% of your existing smartphone cost.

Compared to the traditional subsidy model, which is a two-year service contract, the EDGE program provides more flexibility to customers who like to frequently upgrade their devices.

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