Editor’s note: Verizon reported its first quarterly net loss of wireless retail subscribers despite reinstating unlimited data plans – so what does the company do now? Technology Business Research Analyst Steve Vachon takes an in-depth look.

HAMPTON, N.H. – The loosening of Verizon’s stronghold on the U.S. wireless market was highlighted in 1Q17 as the carrier reported its first quarterly net loss of wireless retail subscribers in its history last week.

Verizon lost 307,000 postpaid customers in 1Q17 despite reinstating unlimited data plans in February, which TBR viewed as a last resort to protect market share as the company was previously reluctant to implement unlimited data due to its narrower profitability compared to tiered data plans.

The carrier’s weakening postpaid performance indicates the bulk of consumers no longer view the quality and coverage of Verizon’s LTE network as a strong enough differentiator to warrant a premium price tag. Verizon faces a predicament in 2017 as the carrier will need to discount its unlimited data plans to compete with T-Mobile One and Sprint Unlimited Freedom, but that strategy would diminish ARPU and unlikely generate sufficient subscriber additions to improve service revenue.

TBR anticipates Verizon will double down on emerging business initiatives to offset weakening performance in its consumer mobility phone business. Verizon restructured its corporate operations in March and created a new division devoted to two of its fastest growing segments: Media and Telematics. Following the closing of the pending Yahoo deal, expected in June, Verizon Media and Telematics will generate around $7 billion in annual revenue.

TBR anticipates Verizon Media and Telematics revenue will continue to accelerate over the next several years due to factors including additional strategic acquisitions, the deployment of Verizon’s Cat M1 network, and new media channels and delivery platforms. Verizon also seeks to monetize its technological advancements by equipping other service providers through its new Exponent business.

Verizon’s Exponent venture will equip non-competitive carriers to integrate emerging technologies

Verizon’s Exponent is a strong example of how digital transformation is enabling operators to disrupt the traditional telecom supply and demand economic model. In Verizon’s case, it leverages what it learned from its own telco cloud initiative and acquisitions to court non-U.S.-based carriers as customers. In these engagements Verizon offers a stack consisting of big data, artificial intelligence, Internet of Things (IoT), media, internet services delivery, and container-based cloud computing and storage platforms to assist global service providers in their digital transformation initiatives. As of March, the company had 60 engagements, but only with operators in global markets in which Verizon does not compete.

At Mobile World Congress 2017, Exponent showcased a new all-IP delivery system that integrates online video services and IoT applications, which will become the foundation of FiOS TV. The platform will enable Verizon to offer enhanced cloud-based multiscreen video services in the vein of Comcast’s Xfinity Stream, enabling the carrier to more aggressively combat streaming services such as DirecTV Now and Sling TV. Exponent will also have the opportunity to monetize Verizon’s platform by selling its technology to other carriers, similar to Comcast’s strategy with X1.

Verizon refrains from purchasing spectrum at the Broadcast Incentive Auction to focus investments on 5G

Verizon’s decision to not purchase spectrum at the recent Broadcast Incentive Auction enabled T-Mobile to purchase 45% of the 600MHz licenses sold at the event. Verizon’s decision to refrain from the auction indicates the carrier believes it will be able to sufficiently sustain its new unlimited data strategy via small cell deployments and more efficiently leverage existing spectrum licenses through emerging technologies including C-RAN, carrier aggregation and LTE Unlicensed (LTE-U). Verizon may also purchase or lease spectrum from Dish Network, which purchased over $6 billion of licenses at the 600MHz incentive auction.

Refraining from purchasing spectrum at the auction highlights Verizon is focusing investments on deploying emerging enterprise-centered technologies such as 5G and software-defined services such as SD-WAN, while competitors such as T-Mobile gain market share in the consumer mobility segment through more aggressive pricing tactics.

Verizon will compete aggressively with AT&T in pre-standards 5G services as the companies seek to gain a time-to-market advantage in 5G while also resolving technical issues and optimizing the cost-effectiveness of deployments before the technology is offered on a wider commercial scale. Verizon is investing heavily to gain an advantage over AT&T, including purchasing at least $1.05 billion of fiber from Corning from 2018 to 2020 to support 5G deployments, and may attempt to outbid AT&T to acquire Straight Path Communications.