Editor’s note: Analysis: Verizon’s expansion into new business segments will position the carrier to sustain revenue growth over the next five years, writes Eric Costa of Technology Business research. But don’t count out continuing strength in wireless.
HAMPTON, N.H. – TBR believes Verizon will remain the strongest competitor in the U.S. wireless market in 2015 despite postpaid phone subscriber growth falling short of expectations in 1Q15. The carrier lost a net of 385,000 postpaid basic phone subscribers in 1Q15, as TBR believes many subscribers migrated to aggressively priced plans offered by competitors. Verizon will likely trail T-Mobile in total postpaid subscriber growth in 1Q15 due to T-Mobile’s success in attracting cost-conscious subscribers through its Un-carrier initiatives. However, TBR expects Verizon will continue to lead the U.S. market in tablet additions in 1Q15 due to its More Everything plans attracting subscribers.
Verizon’s consolidated revenue grew a 3.8% year-to-year in 1Q15 as wireless revenue growth, driven by higher wireless equipment revenue from customers purchasing unsubsidized devices through Verizon Edge, was dampened by declining wireline revenue from the carrier’s Global Enterprise and Global Wholesale wireline businesses. Verizon’s wireless service revenue also declined 0.4% year-to-year due to the impact of discounted More Everything plans and lower ARPU being generated from tablet subscribers.
Verizon FiOS helped to partially offset wireline revenue declines in 1Q15 as the carrier is attracting customers by offering accelerated broadband speeds and broader programming options.
Verizon’s focus on expanding into new segments, such as Internet of Things (IoT) and its upcoming OTT mobile video service, will enable the carrier to sustain revenue growth in 2015 despite decelerating phone subscriber additions and wireline revenue declines.
To improve revenue growth, Verizon is focused on divesting nonessential wireline assets to concentrate on services with greater growth opportunity including its IoT and telematics segment, which experienced revenue growth of 25% year-to-year in 1Q15.
Verizon is divesting wireline assets to concentrate on wireless services with greater growth opportunity
Recent transactions such as selling wireline assets to Frontier Communications and leasing cell towers to American Tower provide Verizon capital to fund wireless investments such as recent spectrum purchases, which are providing added network capacity to support rising data usage from connected devices. Device additions from connected car and connected home subscribers will be more prevalent in 2015 as Verizon is strengthening its portfolio in these segments to compete with AT&T’s offerings.
To help revitalize its connected home business Verizon hired Ohad Zeira in March, the former head of Belkin’s WeMo smart home platform. The operator will also be a stronger competitor in the connected car market in 2015 through its newly launched Verizon Vehicle platform, which will help the carrier compensate for its limited amount of contracts with automakers compared to AT&T.
Verizon is revamping its video strategy to focus on mobile and OTT customers
Verizon is preparing for the launch of its upcoming OTT streaming service by gaining programming rights from a variety of networks including ESPN and CBS Sports, which will help the platform compete against similar offerings such as Sling TV. The service will be available via Verizon smartphones and tablets in mid-2015 and is targeted toward millennial customers. Verizon also launched slimmer FiOS video bundles in April, which offer a low-priced basic TV package where customers can pay for a diverse range of additional programming options according to their preferences.
Verizon’s new video offerings will help the carrier attract subscribers as the services appeal to consumers’ growing preference for OTT platforms and more flexible programming options. However, Verizon will be challenged in standing out from the crowding OTT video market and will face strong competitive pressures from the pending AT&T-DirecTV and Comcast-Time Warner Cable acquisitions in 2015.