Verizon reported stronger-than-expected results in its wireless business during the second quarter of 2021. And most financial analysts attributed the company's performance in part to the aggressive, free 5G phone promotion Verizon launched in June.
Importantly, Verizon officials said Wednesday they're discontinuing that promotion – but they said they can bring it back whenever it's needed to goose the operator's results.
Overall, Verizon's second quarter results helped to show that the operator can continue to grow its subscriber base in the face of heated competition from the likes of AT&T and T-Mobile. But the operator's second quarter report – and its raised expectations for the remainder of 2021 – hasn't quelled concerns over Verizon's long-term position in the 5G era.
Verizon said it added 197,000 new postpaid phone customers during the second quarter, a figure above most predictions and a reversal from the 225,000 postpaid phone customers the operator lost in the first quarter of this year. Most financial analysts attributed Verizon's customer growth to its latest promotion, launched at the beginning of June: a free 5G smartphone for new and existing customers who subscribe to the carrier's more expensive unlimited plans.
That offer largely matched a free phone promotion that AT&T has been offering since last year.
"Verizon finally matched AT&T's costly retention promotion," explained the financial analysts at MoffettNathanson in a note to investors Wednesday. "Verizon had waited as long as they could, but when it was clear that AT&T was hell-bent on continuing the promotion regardless of the cost, Verizon had no choice but to match them. Verizon ended the promotion today, but it is not clear that subscriber growth and low churn are sustainable without it."
"The retention promotions are helping subscriber trends," agreed the financial analysts at New Street Research in a note to investors.
But the analysts generally argued that it's not yet clear whether Verizon will be able to maintain its growth position in 5G, particularly as T-Mobile expands its speedy 5G network running on its 2.5GHz midband spectrum.
"While Verizon responded to recent competition in wireless with aggressive promotions, there is a real risk that competition will only heat further from here, forcing Verizon management to either accept uninspiring subscriber results or cut prices. For that reason we will stay on the sidelines, as we'd rather own the challenger armed with a meaningful network and price advantage: T-Mobile," wrote the New Street analysts.
They weren't the only ones pointing to T-Mobile as Verizon's main concern.
"All this is set against a backdrop of Verizon's slipping network advantage. As we enter the fall 5G iPhone cycle, it is T-Mobile, not Verizon, with 'best network' bragging rights," wrote the financial analysts at MoffettNathanson, citing performance data from network-monitoring company OpenSignal.
"The industry looks poised to get more competitive. And Verizon's network advantage simply isn't there anymore," they continued.
Verizon, for its part, sought to quell those kinds of concerns by raising its overall financial guidance for 2021. The company said it now expects total wireless service revenue growth of 3.5% to 4%, up from its prior guidance of at least 3%. And the company also raised its earnings per share guidance for the same period, to $5.25 to $5.35, from $5 to $5.15.
Everything's on track
Overall, Verizon's management sought to reassure investors that the company's long-term plan remains in place. During the company's quarterly conference call with investors Wednesday, Verizon's top leadership said the operator continues to make progress building out its own speedy 5G network with its C-band midband spectrum.
Specifically, company officials said Verizon continues to expect to upgrade up to 8,000 cell towers by the first quarter of 2022 with C-band spectrum, despite widespread supply chain concerns. Verizon reported spending around $160 million on its C-band buildout during the period.
Verizon officials also said that 20% of Verizon's customers now have 5G-capable devices, and the vast majority of those devices can already access C-band connections.
Further, Verizon officials reported the company remains on track with its millimeter wave (mmWave) network buildout efforts. The company has pledged to double the number of its mmWave transmission sites to around 30,000 by the end of 2021. And company officials said they expect Verizon's mmWave network to handle 5-10% of its overall network traffic in dense, urban areas by the end of this year.
Finally, Verizon executives said the operator remains on track to profit from the sale of 5G services. The company is using speedy 5G connections to encourage customers to sign up for its expensive, "premium" unlimited data plans. Operator executives said that 60% of Verizon's new customers chose such plans during the quarter, and that almost 20% of the company's customer base now subscribes to "premium" unlimited data plans.
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