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Competitive pressure dented Verizon's 3G and basic phone categories, but its financials remain strong in its first quarter after the Verizon Wireless spinoff.

Verizon Loses Its Postpaid Net Add Crown

Sarah Thomas
4/24/2014
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Verizon is starting to bow to competitive pressure in the wireless industry as the operator lost its title as leader of postpaid net additions for the first time in nearly four years.

The crown now goes to AT&T Inc. (NYSE: T), which added 625,000 postpaid customers in the first quarter compared to Verizon Communications Inc. (NYSE: VZ)'s 539,000 additions. (See AT&T Gets 81% of Subs Off Unlimited Data and AT&T Adds 625K Postpaid Subs in Q1.)

This is the first time in 15 quarters that Verizon will not hold the top slot in postpaid net adds, according to Technology Business Research Inc. (TBR) . And, the analyst firm expects T-Mobile US Inc. , which reports on May 1, to outpace Verizon as well due to the rapid adoption of its Simple Choice plans. (See T-Mobile Petitions Operators to Kill Overages.)

As the market leader in size and LTE, Verizon has always acted like it was impervious to the competitive jabs of the smaller guys, such as the self-proclaimed "Uncarrier." But, this quarter, the pressure is starting to catch up with it, primarily in its basic phone customer base. (See Verizon's 4G Strength Keeps It Above the Fray.)

This was a shrinking customer base anyway as 72% of Verizon's postpaid customers now own a smartphone, and 47.9 million of the devices on its network are LTE capable. But the LTE operator also lost customers on basic or 3G phones -- 95,000 in the first quarter -- hence the reason it dropped prices on its More Everything data plan in late March. (See T-Mobile Not Stealing Customers… Yet .)

Despite the subscriber slowdown, Verizon's financial position remains strong. Profit for the quarter was $3.95 billion, or 1.15 cents a share, up from $2 billion, or 68 cents a share, in the previous year. The boost came in large part from the February's close of its $130 billion acquisition of full ownership of Verizon Wireless from Vodafone Group plc (NYSE: VOD). (See Verizon Profit Climbs in First Independent Quarter.)

Verizon no longer has to distribute 45% of its wireless earnings to its former parent, which means the carrier will have significantly more cash on hand to devote to wireless this year. That said, don't expect it to be the one to kick-start a price war. (See Verizon Gets Its Freedom From Vodafone and Vodafone Agrees to $130B Verizon Stake Sale.)

"We will be rational and deliberate in how we respond to the market place," Verizon CFO Fran Shammo said on the earnings call. "We respond to our customers' requests."

TBR believes that Verizon will bounce back and end the year with the highest net additions as its Share Everything plans pick up, optimism that Shammo shared on the call. The CFO said that he expects smartphones to be a slower portion of growth for the entire industry. Instead, other facets such as M2M and tablets or features like VoLTE and multicast video will drive more usage on the network. (See Verizon VoLTE Testing Spotted and Verizon's Coming Attractions: 4G Video.)

"That's what the future holds for us," he said. "Upgrades on smartphones may increase, but it's too early to tell."

— Sarah Reedy, Senior Editor, Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/28/2014 | 12:08:33 PM
Re: T-Mo v Verizon
It will be really interesting to see if T-Mobile emerges as a Tier 1 carrier in the US, assuming it eludes acquisition. Or even wants to elude acquisition. 
lanbrown
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lanbrown,
User Rank: Light Sabre
4/28/2014 | 12:05:10 PM
Re: T-Mo v Verizon
While they don't need to send 45% of the profits to Vodafone anymore, it is not like they just reached in and pulled $130 billion out of their pocket as spare change.  They issued over 1.2 billion shares of stock, which is going to hurt their EPS in future quarters.  They then paid out $6.6 billion in cash.  All in all, Verizon (not Verizon Wireless) is going to have to recoup that $130 billion, so while Verizon Wireless may not have to pay Vodafone that 45% of its profits, mama is going to be looking for her payments now.  Shall we look at Verizon; a company that has been getting rid of its local businesses, is not performing any new FiOS deployments and finally hasn't invested in its high-speed copper Internet service either.  So they are relying on their "cloud" and wireless to drive the returns.  I wouldn't expect to see big expenditures on the wireless side in the near-term.
SarahReedy
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SarahReedy,
User Rank: Blogger
4/28/2014 | 11:48:27 AM
Re: T-Mo v Verizon
Analyst projections suggest that Verizon's subscriber numbers will be in line with its competitors by the end of the year and that they were just hit harder this quarter, but time will tell.
SarahReedy
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SarahReedy,
User Rank: Blogger
4/28/2014 | 11:47:05 AM
Re: T-Mo v Verizon
That's true. Verizon has always been more expensive, and I think people thought they were paying for the reliability and coverage of its network -- marketing lines that AT&T and others are stealing now.
mendyk
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mendyk,
User Rank: Light Sabre
4/28/2014 | 10:46:45 AM
Re: T-Mo v Verizon
Yes, but if you take away our ability to draw profound conclusions from random facts, we'd be forced to just deal with humdrum reality. No fun in that.
SachinEE
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SachinEE,
User Rank: Light Sabre
4/28/2014 | 10:39:15 AM
Re: T-Mo v Verizon
@ FakeMitchWagner, despite the recent displacement of Verizon as the leader of postpaid net additions, recorded the first time in four years; it is still too early to conclude that it is doomed. Its strong financial position at the moment still holds a door way to improvement and rectification so that it can rise up and overtake the highly potential T-Mobile. Since it no longer needs to distribute 45% of its wireless earnings, it can assign a considerable amount of money to the wireless project this year. However, lets still wait and see if the traffic to T-Mobile this year increases and if the number of Verizon customers still goes down the scale.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/28/2014 | 12:10:02 AM
Re: T-Mo v Verizon
People love a clown prince, tough-talking CEO.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/28/2014 | 12:08:50 AM
Re: T-Mo v Verizon
Do you see Verizon as being in any kind of danger, or this just normal market fluctuation?
lanbrown
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lanbrown,
User Rank: Light Sabre
4/26/2014 | 5:45:38 PM
Re: T-Mo v Verizon
Due to their pricing.  T-Mobile and AT&T offer better pricing.  AT&T has that $160 a month for four lines; go to Verizon and get the same 4 lines and 10GB of data and it runs you $260.  How many customers will pay an extra $1200 (plus taxes) a year?
SarahReedy
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SarahReedy,
User Rank: Blogger
4/25/2014 | 11:35:24 AM
Re: T-Mo v Verizon
Yeah, in large part, but also to AT&T, which gained more customers in the quarter. AT&T responded more aggressively to T-Mobile than Verizon did, and I guess it's paying off.
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