Customer Experience Management (CEM)

Verizon 'Comfortable' Churning Low-Value Subs

Verizon Wireless may have lost some subscribers to T-Mobile and Sprint's competitive antics in the fourth quarter, but the carrier's CEO says it's left with the higher-quality customers the carrier wants to keep.

Churn was up in the fourth quarter from third quarter levels of 1% as customers were "moving back and forth to see if the claims are true," Verizon Communications Inc. (NYSE: VZ) CEO and Chairman Lowell McAdam said at the Citi conference Tuesday, referring to rampant new offers from T-Mobile US Inc. and Sprint Corp. (NYSE: S). (See Holiday Deals Squeeze Verizon's Q4 Wireless Margins.)

Even so, the Big Red boss said he's comfortable with the quality of the movement and the quality of the base Verizon with which is left. (See Verizon CEO: We Are Not a Content Company and Verizon CEO Denies AOL Acquisition Interest.)

"The ARPUs [average revenue per users] associated with customers coming in are higher than ARPUs of customers leaving," he said. "Our upgrades and retention efforts are very focused on individual accounts."

The carrier works to keep its high value, i.e. big spenders, around, McAdam said, but believes Verizon's network quality demands a premium, so is not interested in playing Sprint and T-Mobile's pricing games. It has responded to some market changes, like financing new handsets, but doesn't plan to reach the level of the "uncarrier." (See Sprint Drops Prices, But Also Speeds? and T-Mobile Customers Use the Most LTE Data.)

For more on the US pricing wars, peruse the mobile content page on Light Reading.

That’s also because the part of its customer base that isn't fleeing is upgrading phones -- nearly 10% did in the fourth quarter, more than the 9.5% expected to, he said. And, they are adding on additional devices. Verizon has seen devices per account go from 1.7 to "the high twos, approaching three devices" per account, McAdam said. As a result, the average revenue per account (ARPA, which Verizon now reports instead of ARPU) is also on the rise. As of the third quarter, ARPA was $161.24, up 3.5% from the previous year. (See Verizon: Multicast Is 'a Year Away'.)

McAdam expects the current number of "confusing" pricing offers in the industry to stabilize, but says competition will never decrease as "there will always be another offer." That said, he doesn't plan to join in the price wars in any meaningful way. Drawing an analogy between Southwest and United Airlines, he said he's comfortable with where Verizon fits in with his competitors, all of which are targeting different customers segments with different strategies.

"It's good thing for the industry that everyone is lining up and going after different segments," he said. "It's another factor for why we don’t need a lot of regulation in this industry."

Verizon reports its full fourth quarter earnings on Thursday, January 22. Check back to Light Reading for the full numbers and analysis then.

— Sarah Reedy, Senior Editor, Light Reading

mhhf1ve 1/7/2015 | 5:06:23 PM
They'll want those customers back someday... Verizon can afford to say they don't care about the low end right now, but that won't be true forever. There's no real "price war" going on in the wireless market, but that could change pretty quickly (but I'm not sure what the trigger would be).

VoLTE and other flavors of VOIP could catch on -- and people could realize that phones are tablets and vice versa. Skype/Freedompop/GoogleVoice and other VOIP apps could make "phone" plans obsolete if enough people realize and switch away from using "cell phone" plans.


The iPhone update that temporarily shut off the "phone" function of iPhone6s might prove that users can sorta live without the "phone" part of their smartphone as long as they still have a wireless data connection of some kind.... 

If the scenario of kids preferring wireless data and cutting voice minutes becomes a real thing... maybe that could trigger a price war on wireless data plans?

DHagar 1/7/2015 | 1:27:24 PM
Re: Verizon Churing Low-Value Subs Mordyk, good points!
MordyK 1/7/2015 | 1:19:44 PM
Re: Verizon Churning Low-Value Subs I would say both views are accurate. If they we're losing high value customers, they'd be actively responding. The positions of AT&T & Verizon differ from those of Sprint and T-Mobile as they do have reconizably better networks, which customers see and appreicate. In the case of SPrint with its new financial wherwithel it can change drastically as they finish their network upgrades and spectrum deployment, and begin to focus on the perceived qualities and value of the network such as coverage.
KBode 1/7/2015 | 1:16:32 PM
Re: Verizon Churning Low-Value Subs For the moment they seem to be getting away with the argument that a better performing network, better coverage, and better customer satisfaction rankings justify the price tag, but I'm just not sure how long that can hold up. I don't think they're sure either.
DHagar 1/7/2015 | 1:01:38 PM
Re: Verizon Churning Low-Value Subs KBode, I think you are right about that.  They are creating a good facade, but I think are feeling the heat.  It will be interesting to watch what happens.
DHagar 1/7/2015 | 12:58:02 PM
Re: Verizon Churning Low-Value Subs mendyk, I was giving them the benefit of the doubt.  Your possibility may be the real issue.  If so, certainly time will tell.
KBode 1/7/2015 | 11:59:12 AM
Re: Verizon Churning Low-Value Subs I think you're right. It's about downplaying the fact they're actually starting to feel the pinch from T-Mobile. Pretty common for bigger players to proclaim "hey, we didn't need those awful value-hunting consumers anyway" when they finally see real competition. I still don't think they have much to worry about yet from T-Mobile and Sprint, but they very well may in time.
mendyk 1/7/2015 | 10:12:38 AM
Re: Verizon Churning Low-Value Subs Or, this could just be the required tap dance to keep investors and analysts amused and reassured.
DHagar 1/6/2015 | 9:41:52 PM
Re: Verizon Churning Low-Value Subs Sarah, smart strategy on their part.  Any time you start the "deep dive" into commodity pricing, it is a cycle that is hard to break out of.  Identifying and delivering value to targeted high-value customers does work.

My question is if they will continue to identify the high-value customers and what they want, and if their "quality" services will deliver that value to those customers?  If so, they will continue to win.
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