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