Editor’s note: Verizon relies on acquisitions to return to consolidated revenue growth in 2Q17 reported in its earnings announcement on Thurday, says Technology Business Research Analyst Steve Vachon.
HAMPTON, N.H. – Unlimited data boosts Verizon’s phone net additions though wireless margins continue to diminish. according to financial data announced Thursday.
In 2Q17 Verizon was able to report consolidated year-to-year revenue growth (+0.1%, on historical, non-adjusted basis) for the first quarter since 1Q16 but this was mainly due to $693 million in revenue generated from acquisitions that have closed in the past year including Fleetmatics, Telogis and most recently Yahoo, which closed on June 13, 2017.
Verizon’s core businesses continue to feel the weight of pricing pressures and market saturation within the mobility, video and business services markets. These trends are exemplified by wireless revenue remaining in decline (-1.9% year-to-year) despite the recent launch of unlimited data, competition from OTT preventing Fios video subscriber additions and growth within Verizon’s new Business Markets unit being largely contingent on the XO Communications acquisition.
The launch of Verizon’s unlimited data plans in February boosted postpaid phone net additions, totaling 358,000 in 2Q17 compared to 86,000 in 2Q16, as more customers are shifting to unlimited data for its convenience and to support increasing mobile video usage.
TBR believes the price-point of Verizon’s unlimited plans is also benefiting subscriber growth while minimizing ARPU declines as they strike a happy medium, starting at a lower-price point than AT&T’s Unlimited Plus program, competing on-par with multi-line T-Mobile One Plus plans without yielding to the overly aggressive pricing of Sprint’s Unlimited Freedom promotions.
Maintaining sufficient LTE capacity is critical as the carrier is continuing to rely on its reputation of providing superior network coverage as its primary differentiator to attract unlimited data coverage. TBR believes Verizon is well positioned to sustain its unlimited data strategy long-term as currently only 50% of its spectrum is being used for LTE and the company can continue to add network capacity via small cells, deploying AWS-3 licenses and refarming 3G licenses for LTE.
However, Verizon’s network distinctions are becoming less pronounced as competitors continue to densify their networks and move towards 1Gbps data speeds by implementing LTE-Advanced technologies, which will require Verizon to implement new differentiators to stand out in the unlimited data market.
Despite the success of Verizon’s unlimited data plans wireless EBITDA margins fell for the third-consecutive quarter in 2Q17, declining 170 basis points year-to-year to 45.8%. Verizon’s diminishing wireless margins are in part due to the carrier’s shift to a non-subsidy device pricing model as decreased equipment subsidies are failing to offset service revenue declines stemming from lower-priced wireless plans offered under this model. Postpaid ARPU is also being limited by Verizon Plan features including Carryover Data and Safety Mode that are helping tiered data customers conserve data usage.
Conversely, TBR anticipates the adoption of unlimited data plans will mainly have a stabilizing effect on postpaid phone ARPU over the next year as migrations from customers on less expensive plans will be offset by the cost savings heavy overage customers will realize by transitioning to unlimited data.