Verizon To Launch VoLTE Service By December, Delays Launch Of LTE-Only Phones

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Verizon (NYSE:VZ) plans to launch Voice over LTE (VoLTE) service in the U.S. by the end of this year, according to CFO Fran Shammo. Speaking at the Oppenheimer Technology, Internet & Communications Conference last week, he said that VoLTE will not only help improve voice quality, but also provide a platform to pave the way for introduction of new technologies such as high definition telepresence services, including telemedicine. However, customers will have to wait until the first half of 2016 for Verizon’s LTE-only phones (without CDMA chipsets) as the carrier wants to make sure that its VoLTE is as reliable as its existing CDMA voice service. [1]

Considering that 3G services are almost ubiquitous in the country and LTE is quickly gaining traction, the adoption of VoLTE seems to be the natural and logical choice for carriers in their shift towards data. T-Mobile was the first to launch the service in select markets in May and was quickly followed by AT&T. With Verizon finally confirming the launch of its own VoLTE service, we expect the carrier to provide strong competition to its peers owing to its superior network quality, especially with the growing expansion of its upgraded LTE (XLTE) service. It is also important to note that unlike its peers, Verizon will likely launch its VoLTE service nationwide, which is expected to help the carrier register quick adoption. The fact that the launch of its VoLTE is around the same time it expects its Advanced Wireless Services (AWS) spectrum overlay (for XLTE) to be completed across the U.S. is also an indication that Verizon is unlikely to follow its peers in a market-by-market VoLTE launch. [2]

See our complete analysis for Verizon

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Verizon is currently the largest wireless provider in the U.S. (by subscribers) with over 104 million retail subscribers but still has a lot of room for growth in terms of the quality of its customers. The carrier has about 42 million subscribers using 3G smartphones or feature phones who can be encouraged to adopt 4G devices, going forward. This is likely to help the carrier expand its top line since 4G networks are up to ten times as fast as 3G networks and incentivize users to consume more data, thus generating higher ARPU (Average Revenue Per User). This is good for the company’s bottom line as well, because 4G networks are up to 5 times more efficient in delivering data than 3G, which helps reduce operating expenses associated with data usage per account. [2] The growing importance of LTE for Verizon can also be gauged from the fact that even though only 55% of its customers use LTE devices, they account for about 79% of the carrier’s wireless data traffic. [1]

We have a price estimate of $52 for Verizon, which is slightly ahead of the current market price.

4G to Drive Verizon’s Top Line

Verizon lagged rivals T-Mobile and AT&T in attracting new subscribers in the last few quarters. In the first quarter of this year, while Verizon saw its worst performance in terms of subscriber net adds (postpaid and prepaid) in the last two years with about 549,000 additions, AT&T improved its net adds by 30% sequentially to over 1 million, and T-Mobile added 2.4 million. [3]

In a bid to improve its subscriber adds tally and effectively compete with rivals, Verizon made its first big move in February this year when it renamed its “Share Everything” data plans “More Everything” and increased the data allocation for subscribers. It also reduced the monthly charge for adding a smartphone to a 10GB service plan by $5, to $15. For a family of four, this brought down the monthly service cost from $180 to $160 – in line with AT&T’s discounts offered at the time. The popularity of “More Everything” plans can be gauged from the fact that 55% of all postpaid accounts on Verizon’s network were using these plans by the end of Q2 2014, up from 36% in Q2 2013 and 50% in the previous quarter. ((Verizon Communications Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 22 2014))

Verizon benefited from offering such discounts as subscribers started adding more mobile devices to their shared data plans, which eventually encouraged many of them to shift to higher data tiers. This was reflected in the fact that its retail postpaid average revenue per account (ARPA) increased by about 5% year-over-year to about $160 per month, and its retail postpaid connections per account improved from 2.7 in Q2 2013 to 2.8 in the second quarter this year.

With the introduction of VoLTE, we expect Verizon’s top line to get a boost from an improving ARPA and growing adoption of 4G devices. We expect the carrier’s ARPA to improve as customer usage of high speed 4G data will increase with the growing adoption of high quality and high definition voice and video calls. Going forward, 4G adoption is also likely to increase on Verizon’s network because of expansion of its upgraded LTE service, improving affordability of service plans and a gradual reduction in the cost of LTE devices.

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Notes:
  1. Transcript-Verizon Communications Inc at Oppenheimer Technology, Internet& Communications Conference, Verizon, Aug 12 2014 [] []
  2. Mavenir exec: Carriers could use VoLTE to deliver voice services on tablets, TVs, Fierce Wireless, June 13 2014 [] []
  3. T-Mobile adds 1.3M postpaid subs in Q1, blowing past rivals, Fierce Wireless, May 1 2014 []