Verizon reported first quarter financial results that were largely in line with analyst expectations, showing growth in income and revenue and relative stability in customer metrics.

During the first three months of the year, Verizon lost around 178,000 wireless postpaid phone customers. That's relatively close to what analysts had expected, but certainly not what investors had hoped for. But the company said its overall operating revenues increased 4% year over year, and its net income grew more than 25% year over year. The operator said sales picked up in March as COVID-19 restrictions lifted and shoppers returned to Verizon stores.

Verizon said that 14% of its consumer postpaid phone base now has access to 5G.

However, the financial analysts at Evercore warned that Verizon's results might just be the "calm before the storm." After all, the operator introduced a major new smartphone promotion the day after the first quarter closed, a competitive response to similarly aggressive promotions from its rivals.

Tensing rivalries

"It is a competitive market and it has been for a quite a while," said Verizon CEO Hans Vestberg during the operator's quarterly conference call with analysts, in response to a question about the overall environment in the US wireless industry. "We look forward to the second quarter and second part of the year."

And so far, according to Vestberg, "we are actually winning." He said Verizon's pricing strategy for unlimited data – designed to encourage customers to upgrade to more expensive pricing tiers – will be an effective mechanism for revenue growth considering only 23% of Verizon's customers subscribe to its premium unlimited offerings. He added that "we have a lot of financial discipline" in how Verizon designs its promotions.

But analysts are worried that the "best network" sales pitch Verizon used in the 4G era won't fly in a 5G world.

"Recent results from Ookla and others suggest that Verizon's hegemony is already slipping," wrote the financial analysts at MoffettNathanson in a note to investors on Verizon's quarterly results. "This wouldn't matter if Verizon's prices were as low as T-Mobile's. But they aren't. ... To be sure, Verizon's network will still be 'very good.' But will that be 'good enough?'"

C-band hopes

Verizon is racing to keep pace with T-Mobile, which is in the midst of a major 5G network upgrade powered by the 2.5GHz midband spectrum it acquired from Sprint. During the first quarter Verizon agreed to spend around $50 billion on similar midband C-band spectrum licenses, and is now embarking on a $10 billion, three-year buildout plan to put that spectrum to use.

In the first quarter, the operator said it spent $40 million on C-band equipment. And during the operator's call with investors, Vestberg said Verizon has already ordered half of the equipment it will need to construct a C-band network. He added that the company is also confident that the satellite companies vacating the C-band early will do so in the third and fourth quarters of this year.

"We are on to a fast start on the C-band," Vestberg said. "The technology team is on fire."

More brands, more growth

Vestberg added that Verizon's network improvement efforts will ensure that the company can continue operating a 5G "network as a service." That strategy involves putting a variety of brands on top of Verizon's network, including its Visible prepaid offering, the mobile services from Comcast and Charter, and eventually the millions of customers Verizon hopes to acquire from America Movil's TracFone.

"We feel good about our network as a service strategy," Vestberg said in response to a question about Comcast's new 5G pricing. The cable company's new rates are below what Verizon itself charges for unlimited 5G services.

Don't worry about that, was Vestberg's message to investors: "This is accretive to us," he said of the MVNO offerings from Comcast and Charter that run atop Verizon's network. He described the Verizon brand as the "premium" offering, and he said the company has "an unparalleled position" in the market.

Cutting costs, keeping guidance

Interestingly, part of Vestberg's confidence stems from the early conclusion of Verizon's $10 billion cost-cutting initiative, first announced in 2017. Operator executives said the company reached its goal early but will continue to keep cutting costs in the future.

"Just because we've hit the target doesn't mean we're going to slow down," said Verizon CFO Matt Ellis.

Ellis explained that Verizon's cost-cutting program equally affected the operator's capital expenses and its profit-and-loss calculations. He said the company now can do more with less. "That's going to give us benefits for years to come," he said.

Overall, Verizon maintained its broad financial targets for 2021, promising to grow its wireless service revenues by at least 3% during the year. The company also said it continues to expect to spend between $17.5 billion and $18.5 billion on capital expenses during 2021, figures that do not include an additional $2 billion to $3 billion it expects to spend on its C-band efforts during 2021.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano