BTIG Research cut its forecast for Verizon’s postpaid subscriber gains and wireless revenue through 2018.
The nation’s largest mobile network operator made headlines in January when it posted a 4.9% decline in wireless service revenue during the final quarter of 2016, asserting those revenues wouldn’t return to growth this year. Walter Piecyk of BTIG wrote this morning that he expects Verizon’s wireless service revenue to continue to slide through 2018 as ARPU wanes due to the carrier’s rollout of unlimited-data plans.
“We cut our end of 2018 postpaid subscriber estimate by 1.6 million to 109.3 million, driven by lower gross additions rather than a higher churn estimate,” Piecyk wrote in a research note to investors (reg. req.). “We also cut ARPU based on the expectation of continued rerating from the unlimited offering. This resulted in a $1.8 billion cut in our postpaid wireless service revenue estimate in 2017 and $1.2 billion in 2018. This is on top of the $700 million cut we made to our 2018 service revenue estimate when the unlimited plan was first offered.”
In February, Verizon joined the battle over unlimited data, announcing an $80-a-month plan with limitless talk, text and data for both new and existing subscribers who pay automatically. The new offering includes some restrictions—users may be throttled after they exceed 22 GB of data in a given month, for instance—but unlike some other “unlimited” plans, it includes HD video streaming and up to 10 GB of LTE hotspot access.
The announcement marked a significant reversal for Verizon, which had long decried the wisdom of unlimited plans even as its rivals embraced them. “You cannot make money in an unlimited video world,” then-CFO Fran Shammo said in September. “You just cannot do it, because you need the cash flow to keep up with your demand.”
Analysts generally agree Verizon was forced to join the unlimited market to retain customers, but the move could prove costly. Piecyk said earlier this year the launch of unlimited data could cost Verizon $3 billion, or 75 cents per share.
Meanwhile, Verizon’s capex is likely to rise as the carrier continues to densify its network ahead of the rollout of 5G technologies, Piecyk said.
Network investments have “been on the rise since the conclusion of the AWS-3 auction, when Verizon changed wireless management and shifted to a small cell and densification strategy,” Piecyk wrote. “In the absence of a Dish acquisition, we expect the growth in network expenses to accelerate even though Verizon appears to be shifting to a capitalized expense strategy as evidenced by their $1 billion deal with Corning. We believe a capitalized fiber-build strategy will be used in conjunction with, not as a replacement for, utilizing third parties like Zayo and Crown Castle, which impact network expense.”