BTIG: Questions about Verizon's network linger as T-Mobile, Sprint unleash unlimited data

radio masts

The new unlimited data plans from T-Mobile and Sprint have stoked lingering questions about the capacity of Verizon’s network.

The nation’s two smallest tier-one operators made headlines last week by unexpectedly announcing unlimited data plans within hours of each other. T-Mobile next month will offer a single line of unlimited voice, text and LTE data for $70 a month for customers who pay automatically; a second line is an additional $50 and more lines are $20 each. Sprint’s new plan, which launched last week, includes a single line of unlimited everything for $60 a month, and a second line for an additional $40.

The new plans follow AT&T’s move earlier this month to resurrect unlimited data for $100 a month for the first line and $40 a month per additional line. The offering is available only to customers of AT&T’s DirecTV service.

Verizon, however, has consistently dismissed the unlimited-data model, saying it simply isn’t sustainable for operators of 4G networks.

"I've been pretty public saying the unlimited model does not work in an LTE environment," Verizon CFO Fran Shammo told attendees at an investor conference several months ago. "Unlimited is a very short-term game in the LTE market. Eventually unlimited is going to go away because you have to generate cash to reinvest."

But the nation’s largest carrier may be concerned that it wouldn’t be able to support the increased traffic unlimited data plans would likely spur, Walter Piecyk of BTIG Research suggested last week.

“Verizon continues to cite low spectrum usage but evidence in the largest and most population dense markets suggests they are quickly running out of spectrum that they can convert to 4G from 3G, particularly given their commitment to keep a 3G network in service until 2020, and the amount of voice traffic that is still carried over their legacy CDMA networks,” Piecyk wrote on BTIG’s blog. “It is clear that Verizon is pushing forward on cell site densification to increase capacity, but that appears to be going slower than expected as towns and cities are pushing back on aggressive small cell deployment plans, an issue cited on the conference calls of Sprint, tower companies and CommScope, among other places. It’s also questionable whether the limited service area of a small cell can solve Verizon’s capacity needs in the near and intermediate term.”

Concerns regarding Verizon’s spectrum holdings aren’t entirely new, of course, and the carrier maintains it has plenty of airwaves to meet ever-increasing demands for LTE data. Shammo said last December that the idea that “this philosophy that Verizon is spectrum short is just false,” adding that the carrier spent $10.4 billion on AWS-3 airwaves during the FCC’s latest auction, which ended last year.

Verizon recently increased both the price of its plans and the monthly data allotments, as did AT&T. The price hikes may be another indication the No. 1 carrier in the U.S. is feeling pinched by its limited spectrum portfolio, Piecyk said.

“Nevertheless, Verizon management (most notably CFO Fran Shammo) continue to dig in their heels and insist that more spectrum is not the answer,” Piecyk wrote. “However, given that the company is the only one increasing prices, it’s reasonable to wonder if they are simply increasing pricing on what is becoming increasingly rare available capacity.”

For more:
- see this BTIG Research blog post (reg. required)

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