Verizon Waives Activation Fee on Tablets to Drive Adoption


Verizon ( VZ ) recently announced that it will waive its $35 activation fee for Android-based tablets Xoom and Galaxy for month-to-month data plans. Below we present our quick take on this announcement. Verizon competes with other mobile operators like AT&T ( T ) and Sprint ( S ) in mobile and landline business. Our price estimate for Verizon stands at $36.62 which is slightly above the current market price.

Brief Look at the Details

Verizon will not be charging activation fee of $35 to its customers who activate their 3G tablets on its network. Moreover, consumers who find that they have been charged the fee, will be receiving credit on the bill that cancels it out. This gives users a flexibility to activate and deactivate data service as many times as they desire without being hit by the extra fee.

Our Quick Take

Verizon was already not charging any activation fee for iPad 2 in order to stimulate user interest further which only makes sense given that the partnership with Apple ( AAPL ) has developed recently. Thus on its part Verizon wants to promote Apple's product as much as possible. However, given new Android based entrants have made it to the tablet market, it did not make sense to keep activation fee on for them. This is simply promotion of fair play in the industry.

What this may mean in terms of value creation for Verizon? This is an incentive for customers to buy 3G supported tablets and activate 3G data service. Those who might have been interested in trying the 3G plans on tablets but have hesitated on costs, now have one more reason to get the data plan a try. The loss of activation fee revenues could well be made up by more people signing up for data service and besides, this was a necessary move to remain competitive by keeping subscribers happy.

This directly impacts Verizon's data revenues. We estimate that mobile phones & plans constitute about 43% of Verizon's price estimate and that mobile data business is roughly around 34% of mobile phones & plans in terms of value. Above you can see how change in data ARPU can impact Verizon's price estimate.

See full Trefis analysis on Verizon

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , S , T , VZ



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