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Verizon: How to Win Over a Saturated US Wireless Phone Market

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Verizon’s new offering and US smartphone subscribers

In the earlier parts of this series, we learned that Verizon (VZ) recently revamped its wireless offerings and launched the Verizon Plan. The plan features relatively simpler choices for customers. It’s intended to attract new customers who may prefer installment plans to subsidized contract plans.

A simpler postpaid plan with popular-device financing options may help Verizon (VZ) more effectively tap into customer growth opportunities. This is important given how saturated the US wireless postpaid phone market is. More so, given the high level of smartphone penetration in the market.

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Increasing smartphone adoption has been a driver for the wireless industry. But Verizon’s smartphone take-up had already grown considerably by the end of 2Q15. As you can see in the above chart, at the end of 2Q15, ~81.2% of Verizon’s postpaid phone customers had smartphones, up from ~74.6% in 2Q14.

This could negatively affect the pace of future growth in this area. Users of smartphones such as Apple’s (AAPL) iPhone or Google’s (GOOG) (GOOGL) Android phones tend to use more data. This makes them more profitable for wireless carriers.

Customer growth in postpaid phones

Acquiring postpaid phone users is becoming more challenging for the two biggest US wireless players: AT&T (T) and Verizon. Verizon’s postpaid net additions decreased ~21.3% year-over-year to ~1.1 million in 2Q15. And growth was driven by tablets. On a net basis, the carrier added only ~321,000 phone customers during the quarter. Meanwhile, AT&T lost ~741,000 postpaid phone customers during the quarter.

You may get exposure to Verizon while diversifying risk by investing in the Technology Select Sector SPDR Fund (XLK) or the iShares Russell 1000 ETF (IWB). IWB had ~0.9% exposure to the telecom company as of July 31, 2015. Meanwhile, Verizon made up ~4.6% of XLK’s holdings on the same date.

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