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Verizon’s Installment Plans Continue to Grow in 3Q15

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Verizon’s installment plans in 3Q15

In the previous part of this series, we found that Verizon’s (VZ) wireless revenue continued to increase YoY (year-over-year) at a modest pace in 3Q15. It increased by ~5.4% YoY to ~$23 billion during the quarter. We also learned that the biggest contributor to this revenue stream, service revenue, decreased ~4.1% YoY to reach ~$17.6 billion.

Meanwhile, the segment’s equipment revenue grew by a solid ~73.1% YoY to reach ~$4.3 billion during the quarter. The increasing adoption of installment plans is affecting both service and equipment revenues for Verizon’s wireless segment. The adoption of these plans is negatively affecting service revenue and positively influencing equipment revenue.

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Phone activations through Verizon’s installment plans continued to increase in 3Q15. As we can see in the above chart, phone activations on installment plans increased dramatically from ~12% in 3Q14 to ~58% in 3Q15. Even sequentially, the growth trend in the take rate of Verizon’s installment plans continued in 3Q15.

Among Verizon’s wireless postpaid phone subscribers, installment plan customers represented ~22% of the total at the end of the quarter. According to the company, there were ~19 million postpaid phone customers on its installment plans at the end of 3Q15. The company had ~5.6 million phone activations on installment plans during the quarter.

Anticipated growth in adoption of Verizon’s installment plans

In the US wireless space, Sprint (S) and T-Mobile (TMUS) offer both installment and leasing plans. However, among these nonsubsidy plan choices, Verizon and AT&T (T) only offer installment plans.

Verizon expects phone activations on its installment plans to continue to increase at a fast pace. According to the company, phone activations on installment plans are expected to be around 70% in 4Q15.

Instead of taking a direct exposure to Verizon stock, you may take a diversified exposure to the company by investing in the SPDR Dow Jones Industrial Average ETF (DIA), which held ~1.9% in the telecom company at the end of August 2015.

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