Author(s): Raghu Gopal
Yesterday Verizon reported its results for the fourth quarter of 2016. The carrier's numbers confirm our opinion that the US market just can't escape the fate of most of the world: when a country's unique mobile penetration rate surpasses 70 percent, carriers compete keenly on price to attract their rivals' customers, reducing service revenue and margins.
For the quarter, Verizon reported declining wireless service revenue year-on-year, falling profit, shrinking margins, a drop in total post-paid accounts and a decrease in revenue per account.
Verizon's wireless service revenue was $16.3 billion, falling 5 percent from a year ago and 2 percent from last quarter. Operating profit for the wireless segment was $6.3 billion, a 7 percent decline year-on-year. The carrier reported a total of 35.4 million post-paid accounts, a 1 percent fall from a year ago. Verizon did report a rise in the number of lines per account to 3.07, up from 2.98 this time last year.
The carrier added a total of 591,000 post-paid subscriptions during the quarter with about 170,000 of them being phone subscriptions. Verizon reported about 200,000 tablet additions.
Verizon's results were generally considered disappointing as the carrier added fewer wireless customers than had been anticipated. It is struggling to counter strategic moves from rivals in a maturing wireless market.
During the past months, both T-Mobile USA and Sprint began offering new and competitively priced unlimited data plans. This was an important shift in the market, but much of the momentum for change started five years ago after AT&T's plans to acquire T-Mobile USA for $39 billion fell through. AT&T paid T-Mobile $3 billion cash as a break-up fee, which acted as a source of independent encouragement.
Over the past few years, T-Mobile has gained an average of 2 million lines per quarter. T-Mobile now has more than 71 million subscriptions, including wholesale lines. This is up from 33 million in 2011 when AT&T made its bid for the carrier.
Although AT&T's ambitions to make a horizontal industry acquisition failed, it switched to vertical moves, acquiring DirecTV for $49 billion in 2015 and the carrier is now waiting for its $85 billion deal for Time Warner to make it through the regulatory vetting process. AT&T already offers unique wireless-content bundles via its DirecTV brand and could soon take this much further if it comes to own Time Warner.
The US wireless market has been consistently more lucrative than that of other countries. In the UK last quarter, average revenue per user was $22. In the US, it was $45, more than double that of the UK.
Verizon management forecasts a flat year for 2017. Taking that at face value, the company is acknowledging that it will take time before it's prepared to keenly respond to the evolving market. Verizon's content plans includes its acquisition of AOL and the launch of its video streaming service go90.
Verizon is one of the world's largest carriers and is on top of its mission of maintaining and building out its network, which is its core purpose. Verizon's latest results are an indication of changes to come for the US market.