Verizon Customers Defect As Competition Ramps Up -- WSJ

Date : 04/21/2017 @ 3:02AM
Source : Dow Jones News
Stock : Verizon Communications Inc. (VZ)
Quote : 49.9  0.96 (1.96%) @ 7:38PM

Verizon Customers Defect As Competition Ramps Up -- WSJ

Verizon (NYSE:VZ)
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By Ryan Knutson and Joshua Jamerson 

Verizon Communications Inc. is having to slash prices and offer more data to stem an unprecedented wave of customer losses, a maneuver that benefits consumers but hurts its bottom line.

During the first three months of the year, the company posted its first-ever quarterly net loss of wireless subscribers, showing the extent of the damage resurgent rivals T-Mobile US Inc. and Sprint Corp. have inflicted on the nation's largest carrier by subscribers.

To stanch the bleeding, Verizon unexpectedly brought back unlimited data plans in February, which it had stopped selling in 2011, seeking to blunt the appeal of similar offers from T-Mobile and Sprint.

That offer hit financials: Verizon had a 5.1% decline in revenue in its wireless business, which fell to $20.9 billion. Total revenue has now declined four quarters in a row. The results will put pressure on Verizon's management to either find a way to turn things around or make moves that will diversify the company away from the wireless business, where most Americans already have a smartphone and price wars have pinched profits, analysts said.

"The telecom industry is growth challenged," analyst Craig Moffett wrote in a research note to clients, adding upcoming results from other carriers could be just as bad.

The industry's bruising price war has been a boon to consumers. Wireless bills are a major household expense, and their continued decline had a big impact on March's surprising 0.3% drop in the consumer-price index. Prices for wireless telephone services fell 11.4% in March from a year earlier, and declined 7% from February.

"We're confident in executing our strategy organically, but if there's the right opportunity out there to accelerate the strategy inorganically in a way that adds holder value, we're always looking at those opportunities," said Verizon Chief Financial Officer Matt Ellis on a call with analysts on Thursday.

Rival AT&T Inc. has diversified with its acquisition of DirecTV and proposed purchase of media giant Time Warner Inc. But Verizon doubled down on its wireless business in 2014 with its $130 billion purchase of Vodafone Group PLC's 45% stake in their Verizon Wireless joint venture.

The company has also explored bigger transactions, including with Charter Communications Inc., The Wall Street Journal has reported, though executives have recently signaled the two sides are far apart. Many Verizon customers used the unlimited plans introduced in February to reduce their bills -- moving from expensive data plans to the cheaper unlimited one -- rather than choosing to pay up. Average revenue per account, including device payments, declined by only $3, to $166 from $169 in the final three months of 2016.

Delia Brown, a nurse's assistant in Sandusky, Ohio, upgraded three of her Verizon phone lines to unlimited data and her monthly bill dropped more than $40. "I was happy about it," she said of the price drop. It means "more gas in my car."

The introduction of unlimited plans, along with a "safety mode" feature launched last year, also chipped away at lucrative "overage" revenue, which comes from the fees Verizon charges when customers exceed their monthly data limits.

The company's revenue and profit came in at less than Wall Street analysts were expecting. The stock, already down 8.3% so far this year, fell another 1% to $48.41 Thursday.

Verizon said Thursday the unlimited data plans "positively changed the trajectory of customer additions" in the quarter, but it still reported a net decline of 307,000 retail postpaid connections during the first three months of the year, including 289,000 core phone subscribers. That compares with 640,000 retail postpaid net additions in the year-ago period, including 8,000 phone customers. Before the launch of its "Verizon Unlimited" plans in mid-February, Verizon had a retail postpaid phone net loss of 398,000; after the launch, Verizon said it added 109,000 retail postpaid phone connections.

Much of the pain Verizon is going through began as a result of moves T-Mobile began making in 2013, such as ending two year contracts and canceling overage fees. John Legere, T-Mobile's chief executive, mocked Verizon's results on Twitter. Verizon's rivals are slated to report their latest results in coming weeks.

Verizon expects improvement in wireless service revenue this year, with total revenue "fairly consistent" with 2016. But that would leave Verizon in a familiar position: slowing growth on the top and bottom lines, and a sliding stock price.

Overall, for the first quarter, Verizon reported net income of $3.45 billion, or 84 cents a share, down roughly 20% from $4.31 billion, or $1.06 a share, in the year-ago period. Excluding certain nonoperational items, Verizon earned 95 cents a share. Total revenue, which includes the wireline segment and Fios fiber-optic service, fell 7.3% to $29.8 billion.

Analysts polled by Thomson Reuters expected per-share profit of 96 cents on $30.5 billion in revenue.

Write to Ryan Knutson at ryan.knutson@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

 

(END) Dow Jones Newswires

April 21, 2017 02:47 ET (06:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

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