Some Wall Street analysts are beginning to warn of the potential for increased competition in the US wireless industry -- and that Verizon could emerge the loser.
"We upgraded [our opinion of Verizon's stock] in 2017 on the premise that service revenue growth would return to healthy growth. We now fear progress should ebb," the analysts at Wall Street research firm Nomura's Instinet wrote in a note to investors this week, downgrading their opinion of Verizon's stock to "neutral."
They continued: "AT&T's new price reductions, and T-Mobile's likely response, reduce visibility into Verizon's near-term growth trajectory and lower our confidence into its long-term ability to lift pricing for 5G."
"Wireless competitive intensity is set to increase, and we think Verizon is likely to lose share as a result," wrote the Wall Street analysts at New Street Research in a recent note to investors. "In addition to the near-term competitive pressures, Verizon lacks the requisite spectrum assets to defend their competitive positioning over the longer-term. … We remain cautious of Verizon going forward."
In fact, some analysts are noting a downward trend in the US wireless industry already. The Wall Street research analysts at Evercore wrote this week that service revenues across the entire sector grew just 0.8% year-over-year in the third quarter. "This slowdown comes after four straight quarters of 2%+ growth in service revenue," they warned in a note to investors, noting that Sprint and AT&T in particular contributed to the decline.
Price cuts and concerns
At issue are worries that, here at the dawn of 5G, operators are going to begin reducing the cost of their monthly service plans in order to entice more customers to their networks. Already Verizon did just that in August, a move that the analysts at Evercore said helped Verizon notch 444,000 new postpaid phone customers during the third quarter, above their forecast of 368,000.
However, AT&T's willingness to respond in kind -- the operator announced a price cut of its own last week -- stoked fears that operators are in the beginnings of a race to the bottom in terms of pricing, a situation that could cut into their ability to increase revenues and profits over time. And, potentially, their opportunity to make money from their 5G network upgrades.
Indeed, just this week U.S. Cellular announced new unlimited data plans that start at $55/month for one line of service or $120/month for four lines. The operator said it's not reducing pricing specifically, but is working to add new features and perks to its pricing plans, such as a free movie rental from Redbox.
T-Mobile could be the next operator to fire a salvo in any upcoming pricing war. The company is scheduled to make an "uncarrier" announcement Thursday.