Verizon, for First Time, Loses Core Wireless Customers -- 3rd Update
April 20 2017 - 8:10PM
Dow Jones News
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. More Verizon customers used the unlimited plans
introduced in February to reduce their bills -- moving from
expensive data plans to the cheaper unlimited one -- 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 more than 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 20, 2017 19:55 ET (23:55 GMT)
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