AT&T vs. Verizon: Who's leading the convergence race?

Verizon this week outlined its approach to wireless-wireline convergence. But some see the company's new strategy as a poor imitation of the story AT&T has already begun telling.

Mike Dano, Editorial Director, 5G & Mobile Strategies

October 24, 2024

6 Min Read
PhotoConvergence - 3D illustration of 3 flows of spheres converging in a single row over black background
(Source: Olivier Le Moal/Alamy Stock)

Verizon appears to have wholeheartedly embraced the concept of convergence. But analysts are mixed on whether the company's strategy—newly articulated this week—is a bold new effort or similar to what AT&T is already doing.

"The Verizon model of convergence is margin-accretive. It is revenue-accretive and has very attractive ROIC [return on invested capital]. And at the end of the day, it is demand-led," Sowmyanarayan Sampath, the head of Verizon's consumer unit, explained this week during Verizon's "broadband update" investor event.

Sampath said convergence doesn't equate to discounted bundles. "I do not believe in giving away one product to sell the other or giving away one product to hold on to the other," he said.

Instead, Sampath explained that Verizon's convergence story starts with its My Verizon customer-management app, which now covers both Verizon's wireless and wireline offerings.

Convergence metrics 

That combination hints at the benefits Verizon sees in markets where it can offer both fiber and wireless connections. "In some of our big markets where we have fiber, our wireless market share is 500 basis points or 5% better than if we don't have fiber," Sampath said, noting that's part of the reason why Verizon wants to spend $20 billion on fiber operator Frontier Communications.

Sampath also said that converged offerings help prevent Verizon from losing customers. "We see a 50% reduction in mobility churn when we bundle with fiber," he explained. "And ... our fiber churn, which is already world-class, one of the best in the world, will go down another 40% when we bundle mobility and fiber."

Sampath explained that once customers subscribe to the company's connectivity services, Verizon has the option to sell them additional add-ons, such as satellite connections or Netflix subscriptions. He said he expects Verizon's "perks" program, which offers access to services ranging from Apple One to Walmart+, to grow from 7 million subscriptions this year to 14 million by next year.

"We're going to deepen our relationship with our customers and extract value for them and for ourselves in the process," Sampath said.

(Source: Verizon) Sampath said Verizon offers a constellation of connectivity, entertainment and utility offerings.

In a note to investors, the financial analysts at TD Cowen said their calculations back up Sampath's convergence argument. They estimated that converged services can increase the lifetime value of a customer's contract with Verizon by $800.

"The question we had is, 'since Verizon has had Fios for 20+ years, what has changed to make convergence more lucrative?'" the analysts wrote.

Regardless, AT&T CEO John Stankey said the operator is seeing similar metrics in the locations where it's offering both wireless and fiber.

"About 4 out of every 10 AT&T fiber households also choose AT&T as their wireless provider," he said this week during AT&T's quarterly earnings call. "Additionally, our share of postpaid phone subscribers within the AT&T fiber footprint is about 500 basis points higher than our national average. This highlights the true benefit of owning and operating both 5G and fiber networks at scale, which is the ability to drive higher share in both mobility and broadband through converged service penetration."

Expanding the reach of fiber

Of course, a key component of both AT&T and Verizon's convergence strategy involves offering both wireless and wireline services to the same customer. Along those lines, Verizon said it will double its fixed wireless subscriber base by 2028 and eventually extend fiber connections to 35 million to 40 million locations around the US.

That, however, trails AT&T's own fiber expansion plans.

According to the financial analysts at New Street Research, "AT&T has a fiber base that is 1.6x bigger than Verizon's today and AT&T is building fiber at 5x the pace of Verizon today," they wrote in a note to investors following the release of AT&T's quarterly earnings. "Verizon narrows the gap with the Frontier acquisition, but they aren't planning to lean into fiber post the acquisition as much as we expected. Verizon will pull back the combined pace of the build from 1.8 million locations per year to 1 million+. AT&T will likely continue at 2.5 million annually in footprint, plus whatever they do with Gigapower out of footprint."

Concluded the New Street analysts: "AT&T is pursuing the right strategy by pushing into fiber as quickly as they can. Verizon ought to get more serious on fiber and invest more aggressively."

AT&T "now has ~40% of its fiber customers also taking mobile, which is a strategy both Verizon and T-Mobile appear to be attempting to replicate, suggesting AT&T is a favorable competitive positioning," wrote the financial analysts at KeyBanc Capital Markets.

Indeed, the analysts downgraded their opinion of Verizon's stock and lowered their revenue estimates for the operator.

But the analysts at TD Cowen said they favor Verizon over AT&T.

Verizon's shares trended lower after the company's "broadband update" investor event this week, while AT&T's shares rose slightly.

AT&T is scheduled to host its own analyst and investor day on December 3. 

A big country

AT&T and Verizon aren't alone in chasing fiber across the US. T-Mobile too has inked deals with KKR for Metronet and EQT for Lumos to expand its own fiber footprint.

"AT&T elevated convergence to the centerpiece of their strategy. Then T-Mobile announced a deal for Metronet, making it central to theirs. Then Verizon announced their planned acquisition of Frontier… and suddenly convergence was everyone's strategy," wrote the financial analysts at MoffettNathanson in a note to investors following the release of AT&T's quarterly earnings.

But the MoffettNathanson analysts argued that convergence isn't necessarily a sound strategy for a country of almost 350 million people. "AT&T is perhaps the best positioned here… but it's all different degrees of bad," they wrote.

Specifically, the analysts wondered how AT&T, T-Mobile and Verizon will pursue convergence in locations where they don't offer fiber.

"As with Verizon and T-Mobile, AT&T doesn't have a wireline answer in the vast majority of the country, and there is no path for them to get one," they wrote. "If the world moves in the direction of convergence – or worse, if they help move it there themselves – then AT&T loses everywhere they don't have a wireline network. That's currently ~87% of the country."

For Verizon, that figure is 85%. If the operator manages to close its purchase of Frontier and reach its ultimate goal of 40 million fiber locations, Verizon would then cover 25% of the US with fiber – leaving 75% uncovered.

About the Author

Mike Dano

Editorial Director, 5G & Mobile Strategies, Light Reading

Mike Dano is Light Reading's Editorial Director, 5G & Mobile Strategies. Mike can be reached at [email protected], @mikeddano or on LinkedIn.

Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.

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