Verizon confirms it will challenge T-Mo and AT&T with its own upgrade program

During Verizon’s(s vz) second quarter earnings call, CFO Fran Shammo confirmed that the megacarrier is preparing its own device upgrade program that will allow customers to get their hands on new smartphones more often than once every two years. Called Edge, the program will launch on Aug. 25, taking on T-Mobile’s Jump(s tmus) and AT&T’s Next,(s t) both of which emerged in the last two weeks.
“Our customers have been asking for another option,” Shammo said. Not every customer wants to change out their smartphone after just a few months, but there is a portion of Verizon customer’s base that doesn’t want to wait a full 24 months to qualify for upgrade, he said. Shammo didn’t reveal any details, but after the earnings call, a blog post in Verizon’s news center fleshed out some of the finer points:

Here’s how it works: Choose the phone you want and sign up for a month-to-month service plan, it’s as easy as that. The full retail price of the phone will be divided over 24 months and you’ll pay the first month at the time of purchase. If you want to upgrade after 6 months, just pay off 50% of the full retail price of the phone and you can choose a new phone and start all over again.

You pay half the cost of your phone and you can trade it in for a newer model. You can’t get simpler than that, but the catch is Edge is available only over Verizon’s Share Everything plans, which unfortunately means this isn’t the greatest deal for consumers. Share Everything plans are typically for contract customers who receive big discounts on their phones (say $200 for a $650 iPhone 4(s aapl)). Those customers then wind up paying the difference through their phone bills, which factor those subsidy costs in.
So like AT&T’s Next plan, Edge makes you pay for your phone twice each month: once in the form of the Edge installment and once as part of your service plans. For example, if you bought an iPhone 5 using Edge, you’d wind up paying half the cost device ($325) over 12 months, but you’d also wind up paying back Verizon’s subsidy in your device plan, which is about $20 of your monthly bill. That winds up being $565, which is only $85 short of the full retail cost of the iPhone.
Granted, that’s $85 you didn’t have to pay for your device, but a year-old iPhone 5 is still quite valuable, and you lose it when you upgrade to another device. Edge is definitely convenient for the customer, and Verizon is probably right than many of its customers want this kind of option, especially under these relatively simple terms. But in terms of overall value, customers could do a lot better by simply buying new phones every year and signing up for cheaper no-contract or prepaid plans.
There is one caveat though. With Edge you can even accelerate your payments so you reach the 50 percent mark in six months. That’s six fewer months of paying device subsidy fees in your service plan. If you’re a hyperactive upgrader, that would definitely make Edge cheaper.
If Verizon really wanted to offer a completely transparent upgrade program it would tie Edge to its prepaid phone plans (which aren’t cheap but are much more reasonable than Verizon’s contract plans). They’d get their upgrades without being double-charged for the privilege. Verizon might have to require a few more payments than just half of the phone’s cost so it can recoup the device’s cost, but this would still save consumers more money than paying Share Everything rates.
Verizon, however, would have to change up its current data policies to make prepaid amenable to most upgrade customers. Right now it’s limiting prepaid customers to its 3G customers only. Customers who want to upgrade their smartphones every year are the same ones that want to tap Verizon’s LTE network.
This post was updated at 8:30 PT to reflect details released about Edge after Verizon’s quarterly earning call.