Verizon's wireless business mostly beat financial analyst expectations, and the company raised its overall economic forecasts for the remainder of 2021.
However, some analysts warned that Verizon's broader trajectory in the wireless industry, particularly heading into next year, isn't looking so bright.
"Despite a relatively healthy third quarter report – albeit against relatively easy year ago comps – there are reasons for disquiet," wrote the financial analysts at MoffettNathanson in a note to investors following today's release of Verizon's third quarter financial results. Specifically, the analysts warned that Verizon risks losing its "best network" positioning to T-Mobile, and that the company is too reliant on its MVNO deals with cable companies Comcast and Charter Communications.
"Over the past three years, their [Verizon's] relationship with cable has expanded to account for as much as 0.7% of revenue, and 1.4% of EBITDA [earnings before interest, taxes, depreciation, and amortization]. More pointedly, over the same period, the MVNO agreement accounted for as much as 95% of Verizon's EBITDA growth," the analysts wrote. "That gives cable enormous leverage. And it poses a risk at a time when cable hasn't even begun to deploy facilities to offload traffic from the Verizon MVNO."
Indeed, Charter has said that it plans to activate its own mobile network, using its 3.5GHz CBRS spectrum holdings, sometime later this year. The move positions the cable company to offload some of its mobile customers' traffic onto its own network – and to avoid paying Verizon for MVNO access to Verizon's network.
Despite those looming challenges, other analysts cheered Verizon's third quarter results.
Pushing premium plans
"We believe these results show the company continues to execute well in a tough competitive environment," wrote the financial analysts with Evercore of Verizon's Q3 results. They noted that Verizon reported retail postpaid phone net customer additions of 267,000, above most expectations. And Verizon posted gains in its average revenues per customer account.
That's noteworthy because Verizon executives have positioned the company's "premium" unlimited data plans at the center of Verizon's early 5G profit strategy for its smartphone customers. Verizon is offering speedy 5G connections exclusively on its expensive unlimited data plans – alongside other goodies like Disney+ video subscriptions – in an attempt to entice new and existing customers to upgrade to its more expensive, and more profitable, plans.
It's working, according to Verizon executives.
"We are very pleased," Verizon CFO Matthew Ellis said during the operator's quarterly conference call Wednesday. He said 30% of Verizon's wireless customer accounts are now signed up to the operator's premium unlimited plans. And he said that fully 66% of the operator's new customer additions are selecting those premium unlimited plans.
Partly as a result, Verizon raised its overall financial targets for 2021. The company said it now expects total wireless service revenue growth of around 4%, up from a prior target of 3.5% to 4%. And Verizon says it now expects 2021 adjusted earnings per share of $5.35 to $5.40, slightly above its prior guidance of $5.25 to $5.35.
Making 5G better
A major element of Verizon's long-term strategy is expanding and improving its 5G network. The company's initial 5G efforts focused on deploying the technology in its short-range, millimeter wave (mmWave) spectrum holdings. Verizon CEO Hans Vestberg said that strategy is producing results. He explained that more than 20% of Verizon's customer traffic traveled over mmWave in its "established" mmWave markets in the third quarter, and that the company remains on track to shift 5-10% of all its traffic in urban areas onto mmWave by the end of the year.
But a bigger part of Verizon's 5G strategy involves deploying the midband C-band spectrum licenses it spent around $50 billion acquiring at an FCC auction earlier this year. Company officials said Verizon remains on track to deploy those spectrum licenses starting later this year, but they hinted that it's not smooth sailing.
"There are of course challenges in the supply chain," Verizon's Vestberg explained, though he noted the operator hasn't changed any of its deployment targets. That's noteworthy considering AT&T lowered its fiber buildout goals due to equipment shortages.
Overall, Verizon reported that around 25% of its customers now own a 5G phone. Strategy Analytics analyst Phil Kendall noted that figure puts Verizon roughly in line with China's operators.
"5G smartphone installed base is on track to pass 1B units globally by late Q1 2022 which is an amazing achievement," tweeted Kendall's Strategy Analytics colleague David Kerr.
In other Verizon news, the company continues to expect to close its proposed $7 billion acquisition of America Movil's TracFone by the fourth quarter of this year. Interestingly, America Movil reported that it lost 185,000 US customers in the third quarter, finishing the period with 20.1 million customers in the country. America Movil suggested the losses were due to "the limited supply of handsets, especially in the range of mid and low-prices." Verizon's CEO suggested he would be able to address those kinds of problems if Verizon is successful in acquiring TracFone.
- Verizon sweetens TracFone deal in search of regulatory approval
- Verizon's 5G promotion does the job in Q2
- The age of mmWave 5G sputters to a dusty death