Verizon's unlimited plan to cut into service revenue in Q2, Barclays says

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Verizon's unlimited-data plan will continue to be a double-edged sword through 2017, Barclays said.

Jumping on the unlimited-data bandwagon will drive down Verizon’s mobile service revenues even farther, according to Barclays. But it will also help the nation’s largest carrier enjoy postpaid net gains for the rest of the year.

Verizon launched an unlimited data plan in February, joining T-Mobile and Sprint and reversing its long-held opposition to the model. The operator posted a net loss of 289,000 postpaid phone customers during the first quarter of 2017, but said it had been on pace to lose nearly 400,000 subscribers before joining the all-you-can-eat craze.

The company said earlier this year that its wireless service revenue won’t return to growth until 2018, and the launch of unlimited certainly will be another speed bump. But it will likely enable Verizon to claw back customers, Amir Rozwadowski of Barclays wrote this morning in a note to investors.

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“Verizon’s first full quarter of the new unlimited should unsurprisingly drive steeper year-over-year declines in mobile service revenues. We currently estimate 2Q declines of 7.2% vs. last quarter’s 6.1%,” Rozwadowski wrote. “The company does, however, expect to deliver positive postpaid net adds for the duration of ’17. Verizon sees an iPhone supercycle as an opportunity to showcase its network quality and seems less concerned about the industry’s pursuit of un-economic and non-differentiated (i.e. subsidy ‘light’) promotions.”

Meanwhile, Verizon will continue to focus on investing in both its wireless and wireline networks in advance of 5G. Verizon has long leveraged its wireless network as a key differentiator against its rivals, of course, but T-Mobile executives continue to question whether Verizon’s network can keep pace in the era of unlimited.

Fiber has become a crucial component of wireless networks as data consumption ramps up and the need for capacity accelerates, though. And Verizon executives believe its wireless service can thrive as wireline and wireless converge,” Rozwadowski said.

“Verizon is unwavering in its view that focusing on tomorrow’s network is the right strategy for long-term value creation,” the analyst noted. “Drawing parallels to concerns when it first decided to pursue an LTE strategy which was seemingly incompatible with its legacy CDMA path, Verizon believes that its fiber-led capacity augmentation/5G strategy will prove to be a differentiator over time. Bundles for bundles sake, without a unique value proposition, don’t seem to be of interest.”

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