Your Verizon Wireless Contract Is Officially Worth $2,887

Photo credit: Reuters.

Now that the dust settled and we know that Verizon (NYSE: VZ  ) will acquire the remainder of Verizon Wireless from Vodafone for $130 billion, it's time to take a look at what this means for you, Mr. Verizon Customer.

Specifically, your Verizon contract is worth $2,887. Is that really a fair price? Are you worth that much? Well, sure. I mean, look at you. That's a million-dollar smile if I've ever seen one.

But there's also math to consider. A rash of recent studies helpfully compiled by TIME suggests that most smartphone owners pay at least $100 per month. Thus, over the life of a two-year contract, your iPhone or Android superphone will run you about $2,400.

Verizon paid what amounts to a 20% premium to the two-year value of its best customers' average contract. To me, that looks like a screaming deal. Consider:

  1. Operating cash flow could double. As Foolish colleague Anders Bylund points out here, Verizon was earning a substantial portion of its operating cash flow from wireless operations. That business is about to become 45% larger.

  1. Verizon's LTE network build-out is complete. In June, Verizon deployed LTE in its 500th market. The carrier says 99% of its 3G coverage area now has access to its fastest broadband service, and that 57% of data flowing through its network is transmitted via LTE. Big Red's digital highway is tailor-made for big spenders hungry for mobile data.

  1. The average customer still sticks around longer than two years. The latest data I can find says that customers tend to stick with their wireless carrier for 48 months on average. Admittedly, this comes from last year's PriceWaterhouseCoopers wireless survey, but do you really believe it's dropped more than a few months? I don't. If I'm right, then Verizon is paying two years' worth of value for what looks like at least three years of revenue.

Now it's your turn to weigh in. Is your Verizon contract worth it? Would you buy shares at current prices? Leave a comment to let us know what you think.

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  • Report this Comment On September 27, 2013, at 9:03 AM, mdtopper wrote:

    Just an fyi. I am a VZ wireless customer. I have a wife and 3 kids old enough to have cell phones. VZ gives me a plan that includes all five lines and all you can use voice and text plus 4MB of data and upgrades to smartphones every two years (tho not the very latest ones) for a bill that rarely exceeds $300. This equates to $60 per line per month, not $100. Granted I get a small discount due to my company's relationship with VZ but that only saves me $14 a month. So the bill averages $305.

    Maybe the $100 you cite is the average for a single device user. It may not be valid to extrapolate what may be the highest RPS over the entire population.

    Nevertheless, good post.

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