Verizon will continue to trail T-Mobile in phone additions through the foreseeable future as Verizon is unwilling to match competitors’ aggressive pricing tactics to gain new customers.
The American wireless operator is focused on leveraging its 4G LTE network to create new revenue streams, such as IoT solutions and mobile video, which will enable the company to sustain profitability through 2020.
New ventures such as the AOL acquisition and an upcoming OTT video service launch will enable Verizon to sustain revenue growth without sacrificing its industry leading margins. Verizon’s growing portfolio is also creating an ecosystem which is helping the operator retain its postpaid phone subscriber base without relying on aggressive pricing tactics. For instance, Verizon reported its lowest retail postpaid churn in three years in Q2 2015, due in part to increased adoption of More Everything plans as customers with multiple devices on their accounts are less likely to switch to other carriers.
Verizon Edge and FiOS are enabling the carrier to offset wireless service and enterprise revenue declines
Consolidated revenue rose 2.4 percent year-to-year in Q2 2015, driven by higher revenue generated by Verizon Edge and FiOS. However, Verizon reported its lowest consolidated year-to-year revenue growth figure since 1Q11 due to decelerating wireless service revenue growth and declines amongst the carrier’s wireline enterprise and wholesale segments.
Verizon Edge accounted for 49 percent of phone activation in Q2 2015, compared to 18 percent in 2Q14, which attributed to equipment revenue increasing 61.8 percent year-to-year. Verizon Edge adoption will near 60 percent in 3Q15 as the carrier recently revamped the program’s policies to allow customers to upgrade at any time without needing to trade-in their previous devices as long as prior handsets have been paid off in full.
Verizon Edge, coupled with More Everything promotions, helped Verizon to gain 321,000 postpaid phone net additions in Q2 2015 after losing 138,000 postpaid phone customers the previous quarter. Additionally, Verizon gained 852,000 postpaid tablet additions in Q2 2015 as the carrier is attracting customers by offering low-priced More Everything service plans for the devices.
However, the company will once again trail T-Mobile in total postpaid subscriber net additions in Q2 2015, as T-Mobile’s Un-carrier initiatives will continue to bring in the highest postpaid phone net additions.
Verizon’s wireline revenue declined 2.2 percent year-to-year despite FiOS consumer revenue rising 9.8 percent year-to-year in the quarter. The recently launched FiOS Custom TV platform, which provides customers greater flexibility in the programming they can select, gained greater adoption in Q2 2015 than Verizon anticipated, accounting for over one-third of FiOS video gross additions.
However, existing customers migrating to Custom TV from more expensive FiOS video plans had a negative impact on revenue growth in the quarter. Despite lowering video ARPU, offering Custom TV packages is a viable strategy for Verizon to maintain its video subscriber base amidst the growing threat posed by OTT services.
Verizon will leverage its AOL acquisition to capitalize on the burgeoning digital advertising and ad tech markets
Verizon completed its $4.4 billion acquisition of AOL in June. By acquiring AOL, the company enters two high-growth markets historically dominated by the likes of Facebook and Google: digital advertising and advertising technology (ad tech). Though intertwined, the worlds of digital advertising and ad tech represent separate opportunities and new business lines for Verizon. AOL media properties such as Huffington Post and TechCrunch capture revenue in the form of advertising, while AOL’s suite of ad tech (ONE) provides underlying technology to deliver advertising.
TBR estimates the digital ad market will surpass $150 billion in 2015, reaching $300 billion in 2020; the ad tech market will grow from $30 billion in 2015 to $100 billion by 2020.
Verizon will integrate AOL assets to enhance the advertising capabilities of the carrier’s upcoming mobile-based OTT platform. Verizon will incorporate sponsored data into the OTT streaming service which will enable advertisers to subsidize viewers’ data consumption instead of it exhausting subscribers’ data tiers.
Verizon has been procuring content deals in preparation of the launch of the OTT platform and is interested in potentially making additional investments to complement the service, such as possibly acquiring the mobile advertising company Millennial Media.
Eric Costa, telecom analyst, and Steve Vachon, research analyst at Technology Business Research
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