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Verizon to introduce installment plans for phones

By Peter Svensson

Associated Press

Published: Thursday, July 18 2013 9:45 a.m. MDT

FILE - In this Thursday, June 6, 2013, file photo, a pedestrian uses her cell phone as she passes a Verizon Wireless store on Broadway in Lower Manhattan, in New York. Verizon Communications Inc. reports quarterly financial results before the market opens on Thursday, July 18, 2013.

John Minchillo, File, Associated Press

Enlarge photo»

NEW YORK — Verizon Wireless, the country's largest cellphone carrier, on Thursday said it's joining AT&T and T-Mobile in providing installment plans for its phones, aiming to satisfy customers who want to upgrade their phones faster or avoid paying the upfront cost of their phones.

Verizon Communications Inc.'s chief financial officer, Fran Shammo, told analysts on a conference call that the company would introduce a purchasing option called "Edge," but did not give any details on how it would work or when it would be launched.

"We have a lot of customers in the technology edge that want to upgrade sooner than they would under our historical, legacy, subsidy model, if you will. And we have other customers who don't want to pay upfront for the large cost of the phone," Shammo said.

Competitor T-Mobile US Inc. stopped signing up customers for two-year service contracts in March, in favor of selling phones on installment plans. To further cater to frequent upgraders, it introduced an option called "Jump" last week It provides device insurance and more frequent upgrades for $10 a month.

On Tuesday, AT&T announced its own frequent-upgrade option, called "Next." Starting July 26, customers will be able to buy their phones on installment plans, with the option to trade in the devices after a year. "Next" makes financial sense only if the trade-in option is used; otherwise, it makes for more expensive devices than under the standard two-year contract model.

Shammo made his comments while discussing the company's second-quarter results on a conference call with analysts.

Verizon Wireless added 941,000 devices to its contract-based plans in the April to June period, exceeding analyst estimates and continuing a strong run. It boosted service revenues by 8.3 percent from a year ago. Its closest rival, AT&T, is seeing revenue increases of around 4 percent.

Almost all of the gains on the wireless side were due to customers upgrading to higher-priced plans or adding more devices to their plans, as opposed to an influx of new customers. Now that nearly every adult American has a cellphone, easy growth in the wireless industry has ended. Carriers are looking to tablets and other devices to keep revenue rising.

Analysts saw some weakness in the results, pointing to a decline in the profit margins on the wireless side, and Shammo's comment that the rate of device upgrades would be roughly the same as last year. Because the company subsidizes each new smartphone by hundreds of dollars, frequent upgrades are costly.

Verizon shares fell $1.22, or 2.4 percent, to $49.52 in morning trading. It was the first time the shares went below $50 this month. The shares hit a 12-year high of $54.31 on the last day of April.

Net income at Verizon Communications was $2.25 billion, or 78 cents per share, up 23 percent from a year ago, the company said Thursday. Excluding a pension-related gain, earnings were 73 cents per share. That beat the average estimate of analysts polled by FactSet by a penny.

Revenue was $29.79 billion, up more than 4 percent from a year ago and in line with analyst expectations.

New York-based Verizon Communications owns 55 percent of Verizon Wireless, which means that only that percentage of its profits flow to its bottom line. The rest goes to joint venture partner Vodafone Group PLC, a British cellphone company with wide-ranging international interests.

Verizon Communications has a long-standing interest in buying Vodafone out of Verizon Wireless, and analysts expect a deal could be reached later this year.

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