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Verizon Really Wants You to Get a New Samsung Phone Every Year

By Chris Neiger – Mar 18, 2016 at 7:00AM

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The carrier's new upgrade deal around the Galaxy S7 and S7 Edge models aims to keep its customers loyal for the long term.

Source: Verizon. 

Samsung (NASDAQOTH: SSNLF) just released its Galaxy S7 and S7 Edge devices, and they've received glowing reviews. The electronics giant is hoping the smartphones will spur new interest in its devices as it tries to rebuild its crumbling mobile dominance. Meanwhile, Verizon Communications (VZ 0.26%) is hoping the new Galaxy S phones could spur on more sales for its new upgrade plan. 

Verizon announced this week that customers can sign up for its Annual Upgrade Program with Samsung's latest devices -- a deal that was previously only available for those buying Apple's (AAPL -1.96%) iPhones. 

What are the details?
Customers have to buy a new Galaxy S7 or S7 Edge to be eligible for an upgrade once per year. They can then upgrade to a new Samsung Galaxy S device just 30 days after signing up, as long as more than 50% of their current device is paid for. 

If customers don't want to upgrade, they simply continue paying for the device over a 24-month period.

This plan isn't all that different than what some other carriers are offering, though Sprint (S) and T-Mobile (TMUS 0.62%) have a few different options.

How the other plans differ
Sprint offers its customers the ability to upgrade Samsung devices as well, but it's doing it through a leasing option rather than Verizon's installment plan. 

Sprint calls its plan Galaxy Forever (just like its iPhone Forever plan), but instead of being able to upgrade as soon as 30 days after signing up, Sprint customers must wait until they've made at least 12 payments on their devices. 

But T-Mobile offers the most flexibility with its Jump! On Demand leasing option. Customers can upgrade to a new device up to three time per year, and can select a variety of phones including the new iPhones, Galaxy S7 and Note devices, and high-end LG models. Customers can also opt to pay for their device in full (and not upgrade) once the lease term reaches 18 months. 

So why are all these carriers pushing their own yearly upgrade options?

Keeping customers right where they are
Upgrades are nothing new in the wireless industry, but they've changed a bit recently. 

When T-Mobile first moved away from two-year contracts (a trend the other carriers followed), it helped encourage customers to upgrade more often. Carriers no longer have to collect over a year's worth of payments to make up for subsidized phone prices; instead, they collect more each month via installment plans and leases. 

This gives the carriers the ability to offer special deals that encourage customers to upgrade their devices even more frequently -- which dovetails nicely with the fact that high-end smartphones are updated on a 12-month cycle. 

But the carriers aren't just competing against each other for the best yearly upgrade plans. They're also competing against Apple and Samsung's own plans as well. 

Both companies offer upgrade programs that encourage users to buy smartphones from the manufacturer, select any major carrier they want, and pay monthly device installments, with the option of upgrading when the next device debuts. 

While Verizon's new Samsung upgrade plan is mostly aimed at other carriers' customers, it's also likely the company is looking to give them an incentive not to buy their phones directly from Samsung. When customers switch to Samsung's  upgrade plan, it moves the customer relationship away from Verizon and puts it in the hands of Samsung. 

Verizon brought in $5.4 billion in equipment revenue in the fourth quarter of 2015 -- much of it from sales of smartphones -- an increase from $4.1 billion in the year-ago quarter. Verizon is now looking to its new Annual Upgrade Program to further spur device sales and increase revenue in that segment. 

So while Verizon really wants customers to buy a new Galaxy S7 -- it especially wants them to do so through its own upgrade program. 

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Verizon Communications. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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