Doing the Math: Verizon Edge (October 2014)

This is part of what has become a continuing series of Doing the Math articles on the Verizon Edge and AT&T Next programs. Every time I learn of a change in the programs, I try to post updated numbers. If you haven't checked out the previous articles, you might want to give them a read to understand the basics of why these programs exist and what kind of users will benefit from them:

• September 2013
• April 2014

Quick Review

• Verizon Edge is a program which allows a customer to pay the cost of a device over time with monthly payments as opposed to a full or subsidized price at the start of the contract.
• The full term of the agreement is 20 months.
• Customers do not incur any activation fees for upgrading devices.
• An Edge device may be upgrade as soon as two conditions are met:
• 30 days have passed since the last upgrade.
• At least 60% of the original value of the device has been paid.
• Only the listed amount may be paid every month unless a customer is either:
• Paying 100% of the remaining balance of the agreement or
• Paying at least 60% of the remaining balance to be eligible for an upgrade.
• To transition to an Edge agreement from a traditional contract, you must be eligible for an upgrade.
• When a device is in an Edge agreement, it will receive a discount on its monthly line fee. How much depends on the amount of data on the overall plan:
• $10 on plans with 8GB or less of data.
• $25 on plans with 10GB or more of data.

Changes

The major changes in the Edge program from the last article are:

• A decrease in the number of months and payments in the original term. It was previously 24, and now it's 20.
• An increase in the percentage of principal one must pay to be eligible for an upgrade. It was previously 50%, and now it's 60%.
• The activation fee for an upgraded device on a service contract is $30 instead of $35.

Why the changes? My guess is more money in Verizon's pockets with an identical or only a slightly longer upgrade cycle. Assuming the same initial values on devices, shortening the Edge agreement to 20 months from 24 means each individual payment will be higher. This is important since the assumption is most Edge contracts never go full term; users upgrade as soon as they are eligible. From Verizon's perspective, this means they will likely only get 12-14 payments, so the more cash they realize during that timeframe, the more total revenue they get on the agreement.

Now if they simply shortened the agreement, users would pay more per month, meaning they would achieve the ordained upgrade point (50% of original retail price) more quickly. This would probably be close to a zero-sum change, but since Verizon has increased the amount of principal users must pay to be eligible for an upgrade to 60%, they should be able to maintain roughly the same upgrade cycle timing while increasing the overall amount paid on each device before becoming upgrade eligible and continuing the flow of devices to be sold as refurbished devices.

Constants

I think it's worth repeating the constants I use with these scenarios:

• I will not be factoring in other specials/offers which are applicable to all Verizon customers.
• I will not be factoring in insurance or other optional feature costs.
• I will not be factoring in sale or trade-in values of current devices.
• I will assume you are in good standing and have good enough credit to qualify for the program with no down payment.
• I will assume upgrades will be done as soon as possible within the respective cycles. For 2-year calculations, I assume phones chosen during an upgrade in that timeframe will have the same monthly payment as the original phone.
• I will assume all phones are well-maintained and fulfill the criteria for trade-in.
• I will incorporate an average sales tax percentage.

I obviously can't represent every scenario, but I believe the trends that are shown by following these constants can be applicable to many people's situations.


Devices

The primary devices I'll be using for scenarios are:

• Samsung Galaxy S5 16GB
• iPhone 6 32GB
• LG G3 32GB
• Moto X (2nd generation) 16GB
• HTC One M8 (with Windows) 32GB

I normally try to test the high-end devices at the time since that was originally the target market for the Edge program and, frankly, many people I know are more likely to splurge on a mobile device than other items in the same price range.

Upgrade Timing

With the new 60% principal reduction requirement, it's worth revisiting the upgrade timelines for all devices. These will be the same whether the device is on an individual or family plan since the monthly line fee does not factor into it. You can tell the Verizon accountants have been getting more precise: while there has been some per-device skews in the past, all devices in this lineup are now eligible for upgrade after the same 13 month period.

The list below shows the state of each device within the agreement when it becomes eligible for an upgrade:

• Samsung Galaxy S5 16GB
• Original value: $599.99
• Remaining balance: $210.12
• Amount paid: $389.87
• 2-year traditional contract price: $199.99
• iPhone 6 64GB
• Original value: $749.99
• Remaining balance: $262.62
• Amount paid: $487.37
• 2-year traditional contract price: $299.99
• LG G3 32GB
• Original value: $599.99
• Remaining balance: $210.12
• Amount paid: $389.87
• 2-year traditional contract price: $99.99
• Moto X (2nd gen) 16GB
• Original value: $499.99
• Remaining balance: $175.12
• Amount paid: $324.87
• 2-year traditional contract price: $99.99
• HTC One M8 (with Windows) 32GB
• Original value: $599.99
• Remaining balance: $210.12
• Amount paid: $389.87
• 2-year traditional contract price: $199.99

I included the 2-year traditional contract price to compare how much you're actually spending on the device independent of line fees within each plan type. While you end up paying significantly more for each device with the Edge program, the upgrade cycle is much shorter and you receive a discount on the associate line fee which can offset the higher hardware costs.


24-Month Cost - Individual

Equipment/Plan

• 1 smartphone (iPhone 6 64GB)
• Unlimited talk and text
• 2GB data

Service Contract Plan

• Initial cost: $355.99
• iPhone 6 64GB: $299.99
• Sales tax: $21.00
• Activation fee: $30
• Monthly cost: $75
• Single Line plan with unlimited talk/text and 2GB data: $75
• 1 phone for the duration of the plan.
• Total cost: $2,201.76

Edge Plan

• Initial cost: $52.50
• iPhone 6 64GB: $0.00
• Sales tax: $52.50
• No activation fees
• Monthly cost: $97.49
• Single Line plan with unlimited talk/text and 2GB data: $60 (after discount)
• iPhone 6 64GB Edge fee: $37.49
• 2 phones over 24 months
• Phone 1 from months 1-13
• Phone 2 from months 14-24 (and after)
• Total cost: $2,392.26

As expected from previous iterations of this article, the Edge plan is more expensive than the traditional service contract model over a 24-month period for all example devices. How much depends on the device:

• iPhone 6 64GB: $241.27
• Samsung Galaxy S5 16GB: $157.77
• LG G3 32GB: $264.77
• Moto X (2nd gen) 16GB: $137.77
• HTC One M8 (Windows) 32GB: $157.77

When I originally did the numbers for the scenarios for individuals, I was under the impression Verizon had lowered the price for the non-Edge 2GB Single Line to $60/m. Since then, they have updated their website to clarify that is actually the price for the 1GB Single Line non-Edge plan. Since I've always assumed a 2GB plan for individuals, this changed the numbers a bit.

Even with the updated numbers, the gap between the two has grown a bit. In April, the Edge plan was about $122 more expensive on average over 24 months. With today's numbers, that has grown to over $190. That is partly due to the changes to the program, but some of it is the fact that a few of these devices have come out in the interim between the articles (iPhone 6, LG G3, Moto X 2G) and new devices usually cost more. Regardless, the intent of this exercise is to highlight the differences between the plans today, so the takeaway is the marginal cost of the Edge plan is relatively high right now.

24-Month Cost - Couple

Equipment/Plan

• 2 smartphones
• Samsung Galaxy S5 16GB
• iPhone 6 64GB
• More Everything plan
• Unlimited talk/text
• 4GB data

Service Contract Plan

• Initial cost: $594.98
• Samsung Galaxy S5 16GB: $199.99
• iPhone 6 64GB: $299.99
• Sales tax: $35
• 2x activation fees: $60
• Monthly Cost: $150
• 2x smartphone line fee: $80
• 4GB data: $70
• 1 phone per person for 24 months
• Total cost: $4,194.98

Edge Plan

• Initial cost: $94.50
• Samsung Galaxy S5 16GB: $0.00
• iPhone 6 64GB: $0.00
• Sales tax: $94.50
• No activation fees
• Monthly Cost: $187.48
• 2x smartphone line fee: $50 (after discount)
• 4GB data: $70
• Samsung Galaxy S5 16GB Edge fee: $29.99
• iPhone 6 64GB Edge fee: $37.49
• 2 phones per person over 24 months
• Phone 1 for months 1-13
• Phone 2 for months 14-24 (and after)
• Total cost: $4,594.02

As expected, the gap widens when we add lines/devices but fall short of the magical 10GB data level that gives the larger Edge line discounts. The total difference for the scenario shown is about $400, which comes out to $100/person/year for the benefits that Edge gives, up from about $65/person/year for a similar scenario in April.


24-Month Cost - Family

Equipment/Plan

• 4 smartphones
• Samsung Galaxy S5 16GB
• iPhone 6 64GB
• Moto X (2nd gen) 16GB
• HTX One M8 (Windows) 32GB
• More Everything plan
• Unlimited talk/text
• 10GB data

Service Contract Plan

• Initial cost: $975.96
• Samsung Galaxy S5 16GB: $199.99
• iPhone 6 64GB: $299.99
• Moto X (2nd gen) 16GB: $99.99
• HTC One M8 (Windows) 32GB: $199.99
• Sales tax: $56.00
• 4x activation fees: $120
• Monthly Cost: $260
• 4x smartphone line fee: $160
• 4GB data: $100
• 1 phone per person for 24 months
• Total cost: $7,215.96

Edge Plan

• Initial cost: $171.50
• Samsung Galaxy S5 16GB: $0.00
• iPhone 6 64GB: $0.00
• Moto X (2nd gen) 16GB: $0.00
• HTC One M8 (Windows) 32GB: $0.00
• Sales tax: $171.50
• No activation fees
• Monthly Cost: $282.46
• 4x smartphone line fee: $60 (after discount)
• 4GB data: $100
• Samsung Galaxy S5 16GB Edge fee: $29.99
• iPhone 6 64GB Edge fee: $37.49
• Moto X (2nd gen) 16GB Edge fee: $24.99
• HTC One M8 (Windows) 32GB Edge fee: $29.99
• 2 phones per person over 24 months
• Phone 1 for months 1-13
• Phone 2 for months 14-24 (and after)
• Total cost: $6,950.54

As with the numbers back in April, the Edge plan actually saves you money once you get above the 10GB threshhold since the per-line discount goes up to $25, effectively cancelling out most or all of the device Edge fees for that line. However, the gap is significantly smaller: it went from almost $930 back in April to only $265.42 today. The bottom line is you still end up paying less money for a significantly shorter upgrade cycle, so it's likely a good deal if you need a plan with 10GB or more of data.

Conclusions

The recent changes in the Edge program have caused the total cost of an Edge plan to increase compared to a similar device/data plan combination with the original program terms. What that means for you depends on under which scenario you fall:

• If you are an individual or in a multi-line plan which has less than 10GB of data, you will pay more for an Edge plan under most scenarios; the recent changes just mean you pay more over a comparable service contract plan than at times in the past.
• If you are in a multi-line plan which has 10GB or more of data, you will save money when compared to a service contract in most scenarios, but you will save less than you did with the original program terms.

If you haven't yet, I recommend you look at the previous posts for more information. The numbers are no longer valid, but the details about the the tradeoffs and motivations of the program still hold true.

As always, this information is simply to show trends; I recommend you run the numbers for your own specific scenario to determine what the best option is for you.

This article was updated to correct the monthly non-Edge single-line plan fees for individuals and monthly Edge plan fees for couples.