Verizon shocked the industry this week with an about-face on unlimited, offering a new $80 plan with HD video and 10 GB of mobile hotspot data. While it took a few moments for the industry to catch its breath (T-Mobile CEO seemingly the first to do so), analyst takes on what it all means are now pouring in, and many of the diagnoses aren’t great.
As shown in a compilation on Barron’s, Instinet’s Jeffrey Kvaal asserted the move is the “nail in the coffin” for top-line growth across the industry, noting “revenue growth should prove elusive” and AT&T and Verizon will have to look for avenues outside wireless. Similarly, Evercore ISI’s Vijay Jayant predicted the shift to unlimited is an “incremental negative for all carriers.” In Verizon’s case in particular, Jayant said, the move will be dilutive to ARPU in the long run because customer bills won’t rise as usage increases.
Wells Fargo Senior Analyst Jennifer Fritzsche and MoffettNathanson analysts, though, pointed out Verizon expects the unlimited play to be “relatively neutral” for ARPU and service revenue as the carrier believe it already absorbed the hit in losing overage fees with the prior introduction of its Safety Mode and Carryover data features last year.
According to Fritzsche, the move was more defensive than offensive, with Verizon looking to hang on to high-end, big-data users who might be tempted to switch to unlimited. But MoffettNathanson noted Verizon is being quite aggressive, if not through overt pricing but rather the accompanying free phone and ETF buyout offers it’s running alongside the unlimited launch. By MoffettNathanson’s calculations, Verizon could pay as much as $5,750 in ETF buyouts and handset subsidies to get a family of five to switch.
But MoffettNathanson analysts also raised two other important points.
First, Verizon’s decision to offer unlimited with uncompressed HD video seems like an intentional provocation to start a capital spending war.
“Over the long term, Verizon’s move to offer unlimited, uncompressed video will force all of its competitors to spend more to keep pace with Verizon,” MoffettNathanson analysts observed. “In full HD, network loads will now accelerate. And by underscoring Sprint’s dramatic under-spending on their network, Verizon seems to be pressing Sprint to choose between a slide back towards network deficiency … or back towards unsustainable levels of cash burn.”
Second, they pointed out such a war is evidence of competition in the market – and that could have implications for a potential T-Mobile-Sprint merger if regulators see it as a sign that the market is already functioning as it should.
We’ll just have to wait and see how it all pans out – but I’m sure this isn’t the last we’ll hear on the subject.
