Verizon long established itself as a leader in wireless network quality and it could charge a pretty penny for that. Now T-Mobile prides itself on 5G network prowess – while delivering some of the lowest priced plans among the big operators. What gives?
It’s a question that came up at the start of the Q&A portion of Verizon’s third-quarter earnings conference call on Friday. Given what’s happening in the macro environment and “something approaching network parity,” UBS analyst John Hodulik asked: Are the prices at Verizon just too high?
Verizon reported losses of 189,000 phone customers in the consumer division during the third quarter, on top of losses in the two previous quarters. The recent losses were tied to price plan and fee hikes; the company said it expected higher churn as a result of those moves.
In their responses, Verizon Chairman and CEO Hans Vestberg and CFO Matt Ellis gave no indication that they’re budging on pricing, highlighting the recent introduction of lower-priced plans in the prepaid sector. They focused on successes in Verizon’s financial performance.
Ellis said the company’s gross adds were up almost 5% on a year-over-year basis in the third quarter, so “obviously our offerings continue to resonate with customers, obviously built on having the best network, and consumers continue to see the value of that.”
Excluding TracFone, Verizon grew its service revenue by 3.5%, and with TracFone included, service revenue increased 11%, Vestberg said.
“That clearly is working for us,” he said, noting that more than 81% of consumers are on unlimited plans and 42% are on unlimited premium plans. “I think that we have a very competitive pricing in the market,” with plans like the One Unlimited for iPhone plan and “more to come.”
Navi: One Unlimited is least competitive
Navi, which monitors the daily pricing and promotional activities of wireless carriers, evaluated Verizon’s One Unlimited for iPhone plan last month and concluded it’s the least competitive plan compared to others in the premium category, even when compared to Verizon’s own mid-tier plans.
Navi co-founder Patricio Paucar called Verizon’s One Unlimited for iPhone an “interesting plan.” The plan, which is $90/month for a single line, includes unlimited premium data, which is the best type of data, but it offers lower hotspot data amounts, lower video streaming quality and overall less perk value than Verizon’s own 5G Get More alternative, he said.
In Navi’s scoring of comparable premium plans from the three biggest carriers, T-Mobile received the highest ranking for its Magenta Max plan in terms of customers’ bang for their buck, with AT&T coming in second and Verizon close behind in third place.
Over the summer, AT&T eliminated the free HBO Max perk from its premium unlimited data plan, so now it offers no free content of the type that both Verizon and T-Mobile offer. Paucar said a lot of people care more about getting hotspot data than they do about streaming content services. “They know they can get that on their own,” but they can’t easily get hot spot data from another source.
AT&T is going for the basics, or “the meat and potatoes” of what wireless carrier services are all about – unlimited data, hotspot data, streaming video quality and international features, Paucar said. The lack of streaming perks has served AT&T well, and their pricing is competitive, he said.
UScellular President and CEO Laurent “LT” Therivel has described Verizon’s behavior as “pulsing” in and out of promotions over several quarters, and Paucar agreed that’s a good way to describe it.
“It seems like they’re trying a lot of different things,” he said. “I think they’re having a difficult time right now really standing out.”
The problem with the lower-tier Welcome Unlimited and 5G Start plans at Verizon is they don’t include the fastest available speeds, said Roger Entner, principal of Recon Analytics. At a cost of $30 or $35/line, it’s an appealing price, but “it’s slow,” he said.
“They’re launching all these uncompetitive plans. They’re meant to get people into the store,” Entner told Fierce.
Verizon’s Ellis acknowledged during the earnings call that the Welcome plan is one that is getting people into stores, and he said many of them are choosing other plans once they get there.
Entner said that’s exactly what the company wants. “You can’t call it bait and switch, but it’s certainly a bait,” he said. “They try to get them in the door with the low speed and they’re hoping that they’re leaving with the high speeds.”
Based on Recon Analytics’ data, Verizon is leading in the areas of coverage and dropped calls, but it’s lagging behind in speed, which is why it’s so focused on deploying the C-band spectrum as fast as possible.
He expects that when T-Mobile reports on Thursday, its net adds will be around where AT&T’s came in for the quarter – 708,000 – and maybe more. “I think T-Mobile had a very strong iPhone  launch,” he said. “I think it was one of the strongest iPhone launches, if not the strongest iPhone launch ever,” and that’s due to “them being themselves,” he said.
Basically, Verizon needs to build out its 5G mid-band/C-band as fast as possible, and it's been on a fast track to do that. The problem is, "they need to be more than on par” with T-Mobile on the network side, Entner said. “If they are on par, then why do you pay so much more for Verizon? I’m willing to pay more if I get more.”
In the past, people did get more with Verizon, he said. “The people don’t believe that anymore. You see it in the numbers,” he said.
In a report for investors on Friday, MoffettNathanson analyst Craig Moffett said the picture is clear.
“Verizon is struggling with its wireless value proposition, particularly in the Consumer segment. It’s long-standing positioning as ‘America’s best network’ is losing resonance, forcing Verizon to become increasingly promotional to stem subscriber declines,” Moffett wrote. “Balancing this need against an equally critical demand to sustain free cash flow by raising prices will support their dividend and debt service, but at the cost of increasingly high churn and weaker subscriber metrics.”
The report noted that repricing their wireless service isn’t an option, concluding: “There are no easy answers.”