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Tablet users driving Verizon’s postpaid subscriber growth

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Verizon adds more net postpaid tablets subscribers than phone subscribers

Verizon Communications, Inc. (VZ) is adding net subscribers at a rapid rate, courtesy net tablet subscribers. In the last quarter, Verizon added 1 million net tablet subscribers, while it added only 457,000 net postpaid phone subscribers. Overall, Verizon added about 1.5 million retail postpaid net subscribers in the last quarter. This is much higher than the 927,000 net retail postpaid subscribers it added in 3Q13, as the chart below shows.

In 3Q13, Verizon added 481,000 net postpaid phone subscribers, comparable to the 457,000 added in the most recent quarter. That means tablets now represent a larger chunk of net additions to postpaid subscribers. Tablets are also driving Verizon’s postpaid subscriber growth.

Verizon net subscriber additions

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Verizon looks to tablets as good incremental growth opportunity

In our Market Realist article, Why Sprint wants to add postpaid phone connections, we learned that while Sprint Corporation (S) continued to lose net postpaid phone subscribers, Verizon, AT&T, Inc. (T) and T-Mobile US, Inc. (TMUS) all gained them in 3Q14. Meanwhile, an important point to add here is that Sprint did gain some net tablet postpaid subscribers. Now you must be wondering, why are telecom companies such as Verizon and Sprint gaining more tablet subscribers than phone subscribers?

The answer lies in the attractive promotional plans that Verizon introduced for tablets during the year. In April 2014, Verizon started offering 1 GB of additional data per month to customers who activated a tablet using its More Everything shared data plan. Verizon also recently expanded its Edge program to include tablets as well as smartphones.

Verizon believes that tablets lead to increased data consumption, help lower churn rates, and incur lower subsidy costs than smartphones. The company also noted that a 4G tablet customer uses more data than a 3G smartphone customer. Clearly, net tablet postpaid subscriber growth is not only good news for Verizon’s investors, but also for exchange-traded funds (or ETFs), such as the Sector SPDR Trust SBI Interest (XLK), that have high exposure to Verizon.

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