Verizon’s wireless equipment revenue in 3Q16
Verizon’s wireless segment consists of service and equipment subsegments. While the service subsegment deals with the revenues associated with wireless plans, the equipment subsegment deals with revenues associated with the sale of smartphones and tablets. The equipment revenue of Verizon’s (VZ) wireless segment fell ~3.9% YoY (year-over-year) to reach ~$4.1 billion in 3Q16 as compared to ~$4.3 billion in 3Q15.
The main reason for this decline was due to lower smartphone sales during the quarter. The device upgrade rate fell to 6.3% of the retail postpaid base from 7.0% a year ago. This rate was impacted by the total recall of the Samsung (SSNLF) Galaxy Note 7 due to its battery explosion issue. Historically, Verizon had always been the number one leader in high-end Samsung devices.
According to Verizon, another reason for lower smartphone sales was Apple’s (AAPL) iPhone 7 backlog that was created due to supply issues. Apple had launched the iPhone 7 in September this year, but could not cope with the demand.
Penetration of Verizon’s device payment plan
During 3Q16, the adoption of device payment plans rose slightly sequentially. Phone activations on Verizon’s device payment plan were ~70% in 3Q16 compared to ~67% in 2Q16. Verizon expects this take rate to be around ~70% in 4Q16 given the higher seasonal consumer mix of volumes. Increasing adoption of the company’s device payment plans is positively boosting equipment revenue. As a result, Verizon’s equipment revenue rose from ~$3.7 billion in 2Q16 to ~$4.1 billion in 3Q16.
Device payment plan subscribers represented ~41% of Verizon’s total wireless postpaid phone component at the end 3Q16. In 2Q16, this figure was at ~37%. Note that unlike T-Mobile (TMUS) and Sprint (S), Verizon and AT&T (T) don’t offer leasing plans.
According to Verizon, there were ~35.8 million postpaid phone customers on the device payment plan at the end of 3Q16. The company witnessed ~6.1 million phone activations on the device payment plans during the quarter.