Verizon Communications has made some fairly big changes to its popular Edge service plan. While it might appear a better deal for the consumer, Verizon will actually earn more money from its customers. This fits well into Verizon's plan to keep prices higher than the competition, which surprisingly is working in the company's favor.
What's Edge
Programs like AT&T 's Next and Verizon's Edge were created to offer customers incentives in exchange for paying the price of a phone over an installed period of time. With smartphone makers like Apple, Samsung, and others creating new products often, many customers want the option to purchase a new phone before their two year contract with a service provider expires, which is where these noted plans are beneficial.
With Verizon, customers on the Edge plan now pay for their smartphones in 24 monthly installments, rather than 20 months, but if using a family plan with 10GB of shared data, users pay just $15 per line rather than $40. Therefore, the price range paid of $25 to $35 for new devices over 24 months might seem like a good deal, as users don't have to fork over $200 to $400 to purchase a brand new phone every two years.
Paying less now, but paying more total
In looking at changes implemented in October to the Edge plan, Verizon made other moves aside from per line price cuts that too look like a deal for the customer, but actually benefit Verizon. One of the biggest changes is an increase to the number of monthly payments for a device. Customers used to pay 20 installments, but Verizon has raised it to 24.
While this will result in lower monthly payments, customers will still have to pay more long-term. The reason is because Verizon requires the customer to purchase 75% of their device's price before upgrading. Prior to Verizon's plan changes it was 60% that users had to pay before an upgrade.
Therefore, for consumers wanting to purchase the 16GB iPhone 6 Plus -- unsubsidized price of $749.99 -- Verizon charges $31.24 for 24 months rather than $37.49 over 20 months. However, by requiring customers to pay a minimum of $562.49 before an upgrade, or 75%, Verizon is protecting $112.50 per Edge plan customer that may have been lost following an early upgrade. Also, by lengthening the monthly installments, taking longer to pay off 75% of the device, customers are likely to upgrade less often because they would have to pay more to get a new phone.
The result for Verizon
All things considered, Verizon's ability to offer a discount without actually lowering the price of its popular low data plan is brilliant for the company, as is reducing the per line fee and increasing the monthly terms on its Edge plan. While Edge only accounts for 20% of Verizon's wireless subscribers, Jefferies estimates that these changes will result in higher earnings for Verizon, due to a higher percentage of customer payments on the phones.
In retrospect, the fact that Verizon's earnings could improve as a result of these changes is brilliant on behalf of the company, because it is still presented as a deal to the customer with lower monthly payments and a reduction in per line costs. Combined with AT&T's Double the Data plan, Verizon's new Edge marks the second such plan that falls into the category of benefiting the provider rather than the consumer , which might be a trend that the smartest and most successful service providers adopt in a new highly competitive market.
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The article Why Verizon's Edge Wireless Plan Is Sneakingly Brilliant originally appeared on Fool.com.
Brian Nichols owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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