Verizon Communications Inc.’s reluctance to offer mass discounts in a near-saturated mobile market is costing it new subscribers, analysts said on Thursday as the largest U.S. wireless carrier missed Wall Street’s profit expectations.
Shares of Verizon were down nearly 3 per cent at midday on Thursday, making it the biggest percentage loser among Dow Jones industrial average component stocks.
While its rivals have engaged in aggressive discounting, Verizon has been more conservative in price cuts in an attempt to preserve revenue per user at the expense of subscriber adds.
“Verizon and AT&T have solid networks but their price premium is so large that it is going to be very hard for everyone to have their cake and eat it too,” said Craig Moffett, a senior analyst at MoffettNathanson.
“They will have to sacrifice growth or margin going forward and the market is coming to precisely that realization,” he said.
The company has targeted its device instalment plans and discounts at its high-data customers, prompting some low-end subscribers to switch carriers.
“We’ve built our brand on a superior network. We are not going to be the low-cost provider in the marketplace,” Verizon’s chief financial officer, Fran Shammo, told Reuters.
“Not every subscriber is equal,” he said. “We will take our time and respond where we need to respond. We will attack the quality base of customers that we are targeting.”
The company’s wireless business added 539,000 postpaid subscribers in the quarter, 20 per cent less than in the year-ago quarter, while No. 2 carrier AT&T Inc. added 625,000 subscribers, blowing past Wall Street expectations.
Analysts say that as the industry leader, Verizon is looking to maintain its premium price point as a sign of a superior product even at the expense of additional subscribers.
“It is very easy in this industry to lower prices, but it is almost impossible to raise them,” said Roger Enter of Recon Analytics.
“They are rightfully cautious about not jumping head-on into what could be a price war,” he said.
Excluding unusual items, Verizon’s earnings per share of 84 cents fell short of Wall Street expectations of 87 cents per share.
The No. 1 U.S. mobile provider earned $5.98-billion (U.S.) in the first quarter, compared with $4.86-billion in the year-ago quarter.
On the wireline side, it said it added 57,000 FiOS video customers and 98,000 net new FiOS Internet connections in the quarter.
The company said wireless customer defections, known in the industry as churn, increased slightly from a year ago.
Revenue rose 4.8 per cent, the highest growth rate in five quarters, to $30.82-billion from $29.42-billion a year earlier. Wall Street expected $30.7-billion, according to Thomson Reuters I/B/E/S.
Its February acquisition of Vodafone Group PLC’s 45-per-cent share in their prior joint venture for $130-billion gave the company access to greater amounts of cash flow.
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