US Telecom Analysts Expect Carrier Subscribers Up, Especially Verizon Wireless

October 20, 2014 - Written By David Steele

Verizon Wireless are set to announce their third quarter results tomorrow but tonight, global investment bank Credit Suisse have disclosed that they expect Verizon Wireless to post substantial progress in the third quarter reporting period. Their analysts expect Verizon to have added 1.3 million net postpay customers, in other words, 1.3 million more after allowance for leaving customers. This compared with AT&T’s expected 800,000 postpay net customers (AT&T’s figures are due on Wednesday). Whilst these figures are potential eye openers, what is arguably more important is that Credit Suisse have raised the expectations for Verizon from 675,000. They’ve raised AT&T’s figures from 500,000; Credit Suisse say that the increase in subscribers is partially being driven by the new iPhone is better than expected, but it’s telling that Verizon’s expected gain is almost twice originally thought. In a note to investors, Credit Suisse said, “Verizon has been able to maintain strong subscriber trends while remaining less aggressive on pricing than peers.”

We’ve already seen Sprint’s price cutting activity from September and Credit Suisse expect some activity from Verizon in this respect. Sprint’s aggressive price cuts are aimed to bolster their deteriorating market share and the new Chief Executive Officer has already announced that they are revising their 2.5 GHz frequency, high speed LTE strategy. The impact of price competition is largely on profits; even after the carriers make dramatic cuts to customer pricing, they’re still making a profit. Credit Suisse believe that Verizon will have to become more promotional towards the year end, in other words, respond to the price war. Unfortunately, this doesn’t necessarily mean reducing prices (more on this later) but either spending more on marketing and promotional material, or offering more for the same money. The reduced margins shouldn’t have an impact on network infrastructure and the rollout of higher speed data services across the country.

The reason why a price war does not necessarily mean lowering cash prices for customers is because of one of the key benchmarks of the mobile telecommunications sector: ARPU or Average Revenue Per User. ARPU is exactly what it sounds like; it’s the average cash generated per user (or customer). All being equal, it’s in the network’s interests to keep the ARPU as high as possible because it means the customer base is paying more. Unfortunately, customers want the lowest possible ARPU! As plans become cheaper and as networks offer more for the same money, one of the challenges facing the carriers is to keep customers spending. One of the best ways to do this is to charge more for either more data, higher speed data or both: minutes and text messages have depreciated in value, data and connectivity has not. Sometimes – quite a lot of the time! – the customer doesn’t want to pay more for their service, instead they’d like to reduce how much they pay. Here, the carrier may offer more for the same money, so the ARPU remains the same and there’s a small increase in the cost of providing the services to that customer. Carriers also offer insurance plans and the transition to leasing-style arrangements, such as Next, can help ARPU figures. Verizon’s challenge is to at least maintain ARPU in the face of stiff competition: Credit Suisse’s take is that they have a handle on it. Let’s see how close to the business they are tomorrow.