Steve Vachon, research analyst at TBR, has shared an analysis report on Verizon Communications’s 3Q16 earnings.
The TBR report said Verizon will struggle to report long-term revenue growth due to declines in traditional services and obstacles within its developing media business.
ALSO READ: Verizon lowers Capex in Q3 as wireless and wireline revenues dip
Verizon can no longer rely on its core traditional businesses to sustain revenue growth. Wireless revenue declined year-to-year for the third consecutive quarter, dropping 3.9 percent, as the carrier lost 36,000 postpaid phone customers in 3Q16 due to customers gravitating to T-Mobile’s and Sprint’s more competitive pricing offers. Verizon also continues to struggle to increase wireline revenue as more consumers prefer OTT content and less expensive video packages and as businesses move away from legacy enterprise services.
Despite cost-cutting initiatives including the carrier’s shift to non-subsidy wireless plans and migration to NFV and SDN infrastructure, Verizon’s operating margins declined 160 basis points year-to-year to 21.1 percent in 3Q16 due to the company’s lower revenue. Verizon aims to boost margins in 2017 by closing call centers and consolidating sales staff, though these initiatives may diminish the quality of Verizon’s customer service.
Verizon is positioning for long-term revenue growth through its developing media business but the segment will face obstacles. The recent Yahoo data breach tarnishes the appeal of the pending acquisition, and Verizon projects go90 will not be profitable until around 2018 due to high content costs and the challenge to attract viewers amid the plethora of available mobile and OTT video services.
Verizon’s postpaid pricing strategy remains centered on tiered data plans
In the wake of T-Mobile’s and Sprint’s recent shifts to unlimited LTE data plans, Verizon solidified its position as a premium service provider by not following suit. Adhering to tiered data plans will conserve network traffic and provides greater potential for long-term ARPU growth but will cause Verizon to trail T-Mobile and Sprint in postpaid phone net additions for the foreseeable future. Verizon’s focus remains on retaining its premium subscriber base through its network quality, new incentives such as Safety Mode and by offering zero-rated streaming to select mobile video services.
Verizon’s upcoming 5G fixed wireless service has the potential to disrupt the U.S. broadband and video industries
Verizon aims to pilot the first U.S. pre-standards 5G fixed wireless service in select markets in 2017, which would provide customers with broadband speeds exceeding 1Gbps. The platform offers Verizon substantial cost savings over traditional fiber deployments and gives the carrier the opportunity to offer a nationwide FiOS broadband service. Verizon will support its 5G fixed wireless services by leasing 28GHz bandwidth spectrum from XO Communications covering 40 percent of the U.S.
The fixed wireless service will help Verizon accommodate consumers’ growing preference for IP-based video services and 4K streaming, which requires accelerated broadband speeds for optimal delivery. The faster speeds offered by the fixed wireless service also has the potential to help Verizon gain business customers across the U.S. by targeting companies requiring accelerated speeds to power high-bandwidth applications and on-site Internet of Things (IoT) devices. 5G technology will provide Verizon high-bandwidth, low latency machine-to-machine communication, which will be critical for precise IoT.
