Verizon's 4G Strength Keeps It Above the Fray
There's no doubt that Verizon is now first and foremost an LTE operator, and its strength in 4G has kept it above the competitive fray -- for the time being, at least.
Verizon Wireless 's initial LTE deployment is complete as it now covers 99% of its 3G network footprint and has 4G available to 97% of the US population spanning 500 markets and covering 305 million PoPs, including areas served by its Rural America partners.
The carrier announced Tuesday that it activated 9 million LTE devices in the fourth quarter, giving it 42.7 million total LTE devices in its subscriber base, making up 44.1% of its postpaid connections, up from 23.3% a year ago. About 69% of its total data traffic is now carried on LTE.
In announcing the carrier's fourth-quarter earnings, Verizon CFO Fran Shammo said that 58% of Verizon's smartphone customers are on 4G. It also had its best quarter ever in tablets, bringing its total tablet base to 3.6 million, but it didn't break out how many had LTE subscriptions attached.
Shammo did note that Verizon still has 24.7 million 3G customers, but it's clear that LTE is its focus, especially as it is set to close its acquisition of Verizon Wireless from Vodafone Group plc (NYSE: VOD) on February 21. The carrier has said in the past that it plans to introduce LTE-only devices this year, so upgrading those 3G customers will continue to be a priority in the coming months. (See Verizon Eyes Independent, Converged Future and CTIA: Verizon Pushes for Single-Mode LTE.)
Continuing to bolster capacity in its now complete LTE network will also be a 2014 priority. Verizon will continue to expand its LTE network over its AWS spectrum holdings in 50 cities in the first half of the year and is preparing to implement LTE-Advanced features in its network in 2014. The carrier is also working on deploying voice-over-LTE across its network this year. (See T-Mobile Spends $2.4B on Verizon Spectrum , Verizon Gearing Up for LTE-Advanced Services?, and AT&T's VoLTE Phones Start Trickling Out .)
Unconcerned about the Uncarrier
The strength of its 4G growth has allowed Verizon to stay out of the marketing and pricing fray with T-Mobile US Inc. for the most part. Its primary response has been with its Edge upgrade program that allows customers to pay off their device over 24 months. Shammo said the Edge program is going well, but it's generating less than 1% of profitability now. It's more important from a competitive perspective than a business one. (See T-Mobile to Pick Up 'Evil' Family Fees.)
"If you look at what's going on, it's the price shift from service to equipment," he said, stressing that it's not a price war. Verizon's total volume of upgrades was less than last year owing to some policy changes it made, he said, but he won't give guidance on 2014 until the Vodafone deal closes.
Shammo did admit that a segment of its customer base is responding to competitive offers and said that Verizon will "make necessary changes to compete against those changes." But he also stressed the strength of the Verizon brand, its reputation for network quality, and its LTE coverage map that dwarfs competitors.
Industry analyst Craig Moffett agrees that Verizon hasn't had to respond to T-Mobile's "Uncarrier" ways because of the strength of its 4G network, but he's not certain that can last. Its prices remain much higher than the competition, and he believes consumers will soon say "enough is enough."
"With their Vodafone deal now on the brink of closing, Verizon is now a heavily-levered behemoth that has doubled-down on the U.S. market just before the food fight got sloppy," Moffett writes in a research note. "They are vulnerable precisely because they have been so successful."
Overall, for the fourth quarter, Verizon added 1.7 million subscribers and activated 8.8 million smartphones, down from 9.8 million a year ago, but up from 7.6 million in the third quarter. It finished the year-end quarter with wireless revenues of $21.1 billion, up 5.7% over last year. (See Verizon Makes $7.9B Profit in Q4.)
— Sarah Reedy, Senior Editor, Light Reading