Verizon Monday released fourth-quarter guidance that indicates recent competitive pressure may be cutting into profits.
Shares of Verizon were down four percent in early trading Tuesday, as the carrier said in a press release that “total retail postpaid disconnects are trending higher both sequentially and year over year in this highly competitive and promotion-filled fourth quarter.”
Verizon expects promotional offers and an increase in smartphone upgrades to put “short-term pressure” on wireless EBITDA and EBITDA service margins, as well as on “consolidated EBITDA margin and earnings per share.”
According to a press release, the onslaught of new device launches is driving customer upgrades. Verizon said that approximately three out of four upgrades were strategic or high-quality, meaning they were from a basic phone or a 3G smartphone or a high-value customer.
The percentage of customers choosing the Verizon Edge equipment-installment plan option so far in the fourth-quarter of 2014 is tracking to 24 percent, or double the rate of third-quarter 2014, which was approximately 12 percent of total phone activations.
Verizon still expects capital spending for 2014 to land around $17 billion.
Baird has downgraded Verizon to Neutral, and cut its target for the carrier by $4 to $50.
Verizon’s warning appears to have trickled over to the other Tier 1 carriers. AT&T, Sprint and T-Mobile were all off in early trading Monday. T-Mobile was already down over 5 percent as of 8:50 a.m. CST, but part of that was partially attributed to its announcement late Monday that it is offering 17.4M shares of mandatory convertible preferred stock. AT&T and Sprint were down 2.8 percent and 2.3 percent respectively.