Verizon Loses Postpaid Phone Customers Following Price Hike

Verizon took a hit on Wall Street Friday after announcing the loss of 189,000 wireless consumer postpaid phone customers Q3, partially as a result of raising prices. Consumer wireless postpaid churn was 1.1%. Verizon’s share price was down as much as 6% and closed down 4.46% at $35.35. Chief Financial Officer Matt Ellis warned that pricing pressure would continue into Q4.

On Thursday, AT&T reported adding a net 708,000 postpaid phone customers in the quarter (see 2210200062). T-Mobile is scheduled to report Oct. 27.

“The pricing actions we took earlier this year, as well as our new cost savings program, show that we are being deliberate and strategic in our decisions to strengthen our business,” said CEO Hans Vestberg: “At the same time, we are focused on executing our 5G strategy, as we are covering every major market and accelerating our C-Band network build.”

“As expected, the pricing actions we took around administrative fees and metered plans led to an increase in disconnects,” Ellis said on a call with analysts: “With certain price-ups being phased in throughout the third quarter, we would anticipate some disconnect pressure to carry over into Q4.” Ellis said the price increases touched 75 million customers. “The uptick in churn that we saw in the quarter was highly expected,” he said.

The C-band build is going better than expected, Vestberg said. Verizon expects to cover 200 million POPs with C band in Q1 of next year, he said. “We will just continue to deploy as we are getting more spectrum,” he said: “We are using mainly 60 MHz. There are some places where we have started to trial 100 MHz. But as you know, we have 161 MHz [of C band] nationwide.”

Ellis said an initial C-band capital expenditure investment of $10 billion is enough to cover the first 200 million POPs. “Where you get 4G today, you should be expecting to get 5G in the future as we continue to build out,” he said. C-band spending was $4.5 billion for the first 9 months of the year.

Vestberg said he expects more convergence “in a market where mobility and home is going together” and Verizon is well positioned to offer wired and wireless broadband. “Of course, ultimately, the customers will define is that the best model,” he said.

On a positive note, consumer losses were offset by 360,000 wireless business phone adds. Verizon reported 234,000 fixed wireless net additions on the consumer side and 58,000 Fios net adds. Verizon had 39,000 wireless prepaid net adds tied to the Tracfone buy. Wireless revenue increased 10% compared to a year ago, to $18.8 billion -- overall revenue 4% to $34.2 billion.

Profit fell 23% from a year ago, to $1.17 per share. Earnings were reduced as the result of a charge of $645 million primarily to address pension liabilities, and $236 million tied to the Tracfone buy, Verizon reported.

MoffettNathanson’s Craig Moffett warned there are “no easy answers” for Verizon to get back on track. “It’s hard to command a price premium when your product is perceived as second best” or “is being sold by someone else (Cable) for less than you charge yourself,” Moffett said: “Repricing their wireless service isn’t an option; they’ve got a dividend and debt service to worry about. Densifying their 3.7 GHz 5G network to match T-Mobile’s 2.5 GHz coverage would cost a king’s ransom. Matching AT&T’s promotionality seems necessary but not sufficient (indeed, they largely already have).”

Verizon’s Welcome Unlimited plan, unveiled in July (see 2207120048), shows the pricing dilemma facing Verizon, New Street’s Jonathan Chaplin told investors. The plan “looks nervously constructed so as not to attract any of Verizon’s core base, but in the effort not to appeal to the core base, it doesn’t look particularly compelling to price sensitive customers,” he said: “Consumers can get a much better deal on the same reliable Verizon network from Cable, and they can get a better deal still from T-Mobile.”