VZ

Verizon Communications Inc.

51.64
USD
1.75%
51.64
USD
1.75%
45.55 56.85
52 weeks
52 weeks

Mkt Cap 213.80B

Shares Out 4.14B

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AT&T May Have Just Given Verizon a Gift

AT&T (NYSE: T) was the first of the big three wireless carriers to budge when it announced a price increase for some customers on older service plans. It's the first notable price increase by any of the big three carriers since T-Mobile US (NASDAQ: TMUS) completed its merger with Sprint. The price increase -- focused on older service packages -- is designed to get customers to switch to newer unlimited plans. But Verizon (NYSE: VZ) may end up being a big winner from the price increases. Fighting inflation AT&T and the other wireless carriers are seeing their costs increase. Not only are they putting up more equipment on towers to build out their 5G networks, but the labor market is pushing them to pay higher wages to retail workers. T-Mobile increased its minimum wage to $20 per hour in December. Verizon followed last month. While AT&T hasn't officially raised its minimum wage, the market requires it to pay new employees more, which means a significant increase in costs. CEO John Stankey made it clear on AT&T's first-quarter earnings call on April 21 that the company will have to adjust pricing in order to combat the pressure from wage inflation. He was optimistic about the potential. He noted the low churn levels and additional value AT&T has brought to customers in the last few years. AT&T's postpaid phone churn was an industry-leading 0.79% in the first quarter. Meanwhile, Verizon's churn rate was 0.83%, and T-Mobile's was 0.93%. AT&T has also been adding valuable postpaid phone customers at an industry-leading pace. Net adds were 691,000 in the first quarter, which was better than T-Mobile's 589,000 and Verizon's net loss of 36,000. Therefore, AT&T is in a position of strength to make the price changes. But it's important to consider that we're starting to come out of an environment impacted by COVID-19, when churn reached a low point and customers may have signed up for long-term device installment plans. Verizon could gain A survey from Recon Analytics asking about AT&T's planned price hikes found just one-quarter of respondents would pay the higher price. The other 75% would look to switch plans, either a lower-cost option at AT&T or a competitor. In addition, Recon found Verizon was most likely to pick up the subscribers AT&T lost. It also suggested AT&T's churn rate would climb by about 25 basis points. With over 80 million retail postpaid phone subscribers, that represents an additional 600,000 subscribers lost each quarter. That would practically wipe out AT&T's net subscriber additions. Meanwhile, Verizon could pick up more than half of the churning subscribers, according to Recon. That would provide a significant boost to its postpaid phone additions, which have lagged both AT&T and T-Mobile recently. Verizon's management was pessimistic about its consumer subscriber trends during its first-quarter earnings call. After losing 292,000 consumer subscribers (partially offset by growth in business subscribers), it said the trends were weakening in March and April. Will Verizon and T-Mobile follow? Stankey isn't too worried about losing customers over the long run. While the price hikes might cause a temporary spike in churn, customers aren't going to stop paying for cellphone service altogether. Ultimately, Verizon and T-Mobile will have to follow suit in some form. During its first-quarter earnings call on April 22, Verizon CEO Hans Vestberg said the company will consider different types of "cost adjustment" and what it can do with pricing. Meanwhile, T-Mobile's strategy to raise its average revenue per account stems from migrating customers to its most expensive plan -- Magenta MAX. It's also looking to add services for connected devices and home internet. To that end, it's managed to improve both revenue per account and revenue per user 2% to 3% over the past year. That still trails inflation, but it compares well to AT&T's flat ARPU numbers. If Verizon makes a similar price hike, T-Mobile may end up taking greater market share while reducing churn. But for now, Verizon stands to win the bulk of AT&T defects. That should goose its second-quarter net postpaid phone subscriber additions, which could be a big help after management's second-quarter outlook contained uncertainty around consumer wireless growth. 10 stocks we like better than AT&T When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and AT&T wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 7, 2022 Adam Levy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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