When getting a new phone on Verizon, you have two options: you can either activate it on a two-year contract or you can activate it on Verizon's EDGE program. In the near future, Verizon will transition out of two-year contracts and move exclusively to the EDGE plan. For the time being, let's take a look at the difference between the two options so you can figure out what's best for you.
The Two-Year Contract
How it Works
The two-year contract model is how cell phones in America have been for awhile. With a two-year contract, you purchase your new phone from Verizon at a heavily discounted price and, in two years, you are able to purchase another phone at a discounted price. During the two-year period, you cannot terminate your Verizon service or the specific line from service without facing an early termination fee (ETF). However, the two-year contract does not lock you into a specific service plan type. For example, you can change the data allowance on your plan whenever you want without facing any fees or paying an ETF. The two-year contract only applies to the phone being upgraded.
The Subsidized Phone
As previously mentioned, on a two-year contract you purchase the phone at a large discount. For example, you can upgrade to a 16GB iPhone 6 on a two-year contract and pay $199 for the phone. However, that specific iPhone actually costs $649. Verizon provides a huge subsidy on the phone hardware since you are signing a two-year contract. Since you are purchasing the phone outright, you own the phone during and after the two-year period.
The two year contract comes with more fees than phones on the EDGE program. One fee is the upgrade/activation fee. Whether you are upgrading or adding a new line on a Verizon two-year contract, you pay a $40 per line upgrade/activation fee that shows up in your next bill. Almost all Verizon customers, with the exception being larger business accounts, pay this fee.
The other fee relevant to a two-year contract is the ETF. On Verizon, the ETF on a two-year contract for a smartphone is $350 when you first purchase your phone and sign the contract. This $350 ETF on “advanced devices” (smartphones) stays for the first seven months of the contract. From months 8-18, the ETF declines by $10 per month. From months 19-23, it declines by $20 per month. In the final month of your contract, the ETF reduces by $60.
Verizon EDGE Program
How it Works
The Verizon EDGE service has been around for almost two years now and is the program that Verizon will be exclusively moving to in the near future. On Verizon EDGE, you get your phone for free and pay off the device's full retail price over 24 months. You are not locked into a contract and avoid many of the fees associated with the two-year contract. Verizon also gives you a discount on your monthly service for each line on EDGE.
Owning vs. Financing
On Verizon EDGE, you pay the sales tax on the phone when you first get the device and then finance the retail sales price over 24 monthly payments. This means at the end of two years, your phone is completely paid off. You do have the option of paying a down payment on the device when you first purchase it. This will lower your monthly payment. At any time during the 24 months, you can pay off the balance owed on your phone and own it. You can even make a down payment equal to the full price of the phone when you first get it in order to avoid a monthly EDGE payment. On EDGE in order to upgrade to a new phone, you must have 100% of the phone paid off. However, you are not locked into a contract. This means you could get a new phone on Verizon EDGE, pay it off in a month and then cancel the service on the line without paying an ETF.
Monthly Line Access Discounts on EDGE
In addition to not paying upgrade fees or ETFs, EDGE customers get a per line discount on their monthly access fees for each phone on the EDGE program. On a two-year contract, the monthly access fee for a smartphone is $40 per line. On EDGE, you get a $15 or $25 discount off this fee per line. The discount depends on the amount of data on your plan. Accounts with 4GB or below receive the $15 per line discount while accounts with 6GB or more data receive the $25 discount.
EDGE vs. Two-Year Contract
Basically, if you have 6GB or more data on your Verizon account and plan on keeping your data allowance at or above that level, the EDGE program is more affordable. For customer's with 4GB of data or less, EDGE is slightly more expensive over two years. In both cases, however, customer's benefit from the EDGE program in the sense that they are not locked into a two year contract and can upgrade their phone whenever they want. You also avoid many of the pesky fees associated with activating your phone on a two-year contract.
Now, let's look at a couple numerical examples. The following two scenarios will compare the costs of EDGE vs a two-year contract for a customer's account with two 16GB iPhone 6's. We will look at an example assuming a 2GB data allowance and one assuming a 10GB allowance. Sales tax in this example is set to 9.5%.
2 16GB iPhone 6's with 2GB of Data
2 16GB iPhone 6's with 10GB of Data
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