Why adoption of Verizon’s Edge program increased at a slow rate

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Aug. 25 2014, Updated 1:22 p.m. ET

Verizon’s Edge program provides more flexibility to customers

Verizon (VZ) introduced the Edge plan last year. Edge is an installment plan for customers who want to upgrade their devices faster or who don’t want to pay the up-front 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. 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.

Edge adoption increased at a slower rate than expected

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During the conference call to announce the second quarter of 2014 (2Q14) earnings, Verizon’s management mentioned that Edge adoption has increased from 13% in 1Q14 to 18% in 2Q14. However, this increase was slower than the 30% Edge adoption that Verizon’s management expected by the end of second quarter, as shown in the chart above.

Management mentioned that during the holiday season last year, it marketed its Edge program, which helped its uptake. However, in the last quarter, Verizon ran a number of promotions related to Mother’s Day and Father’s Day that were centered around its traditional subsidy plan. Clearly, the lack of marketing efforts to promote the Edge adoption in the second quarter led to its slower growth.

Another reason for slower-than-expected Edge adoption was the increased competition from similar plans adopted by AT&T (T) and T-Mobile (TMUS). AT&T’s frequent upgrade plan—Next—allows customers to upgrade their phones once every year. T-Mobile introduced a similar plan—Jump—which allows customers to upgrade their devices a maximum of two devices per year whenever they want.

If Verizon manages to increase its Edge adoption, this will benefit exchange-traded funds (or ETFs) such as the Technology Select Sector SPDR Fund (XLK) and the iShares Dow Jones U.S. Telecommunications ETF (IYZ), which have high exposure to Verizon.

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