Verizon Communications Inc., once the untouchable leader of the U.S. wireless industry, is struggling to hold onto customers and getting them to pay a premium for its service.
The carrier posted its first ever quarterly net loss of wireless subscribers during the first three months of 2017, 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.
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, to $20.9 billion.
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.
Verizon stock is trading more than 1.5% lower Thursday.
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, after a 7% decline in February.
Rival AT&T Inc. has diversified with its acquisition of DirecTV and proposed purchase of media giant Time Warner Inc. But Verizon doubled down in 2014 with its $130 billion purchase of Vodafone Group PLC’s 45% stake in their Verizon Wireless joint venture.
Since then, Verizon has spent more than $10 billion on smaller deals such as AOL and Yahoo Inc., but neither deal is enough to move the needle. The company has also explored bigger transactions, including with Charter Communications Inc., The Wall Streeet Journal has reported, though executives have recently signaled the two sides are far apart.
“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 shareholder value, we’re always looking at those opportunities,” said Verizon Chief Financial Officer Matt Ellis on a call with analysts.
More Verizon customers used the unlimited plan to reduce their bills — moving from expensive data plans to the cheaper unlimited one — than customers chose to pay up. Average revenue per account, including device payments, increased by only $1, to $166 from $165 in the year-ago period.
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.
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 brash chief executive, mocked Verizon’s results on Twitter. T-Mobile and AT&T are slated to report their latest quarterly results in the coming weeks.
The company’s revenue and profit came in less than Wall Street was expecting. The stock, already down 8.3% so far this year, fell another 2% to $48.03 in early Thursday trading.
Verizon said Thursday the unlimited data plan “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 phone losses. That compares with 640,000 retail postpaid net additions in the year-ago period, including 8,000 phone losses.
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 cancelling overage fees. John Legere, T-Mobile’s brash CEO, mocked Verizon’s results on Twitter. Verizon’s rivals are slated to report their latest results in coming weeks.
Verizon’s decision in recent years to give away free tablets as a way to juice subscriber numbers is also coming back to haunt it, as many of the customers who signed up for two-year data plans in exchange for a free tablet aren’t renewing their subscriptions.
Verizon expects improvement in wireless service revenue this year, with total revenue “fairly consistent” with 2016. But that stands to leave Verizon in a familiar position: slowing growth on the top and bottom lines, and a sliding stock price.
Overall, for the March quarter, Verizon reported net income of $3.45 billion, or 84 cents a share, compared with $4.31 billion, or $1.06 a share, in the year-ago period. Excluding certain items, Verizon earned 95 cents a share. Total revenue, which includes the wireline segment and FiOS 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.
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Verizon loses wireless customers for first time – MarketWatch