What You Should Know About Verizon’s Postpaid Price Increase
Verizon (NYSE:VZ) hiked pricing on its new postpaid plans by $5-10 per month, while providing higher data capacity on most plans and a host of value-added features including data carryover and speed-throttling to eliminate overages, which are already offered by its smaller competitors. (See plan details) Below, we provide some of the key takeaways of the move for Verizon investors.
Trefis has a price estimate of $55 for Verizon’s stock, which roughly in line with the market price.
See our complete analysis for Verizon
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- It’s clear that Verizon doesn’t want to get caught up in the postpaid pricing war that its smaller competitors Sprint and T-Mobile are engaging in. While Sprint has resorted to slashing pricing, T-Mobile has been focusing on providing value-added services such as zero-rating video data and international roaming without meaningfully raising rates. In contrast, Verizon is making it clear that its value proposition lies in its superior network quality and coverage as well as its premium branding.
- With the U.S. wireless market saturating, revenue growth coming from new subscriber adds is slowing. Moreover smartphone penetration is also saturating, implying that the incremental revenue coming from subscribers adding data services to their plans will diminish. Now, Verizon is counting on boosting average revenues from existing customers by offering more data, while raising prices. This could be a sure way to drive revenue growth over the long term, as Cisco estimates that U.S. mobile data traffic will grow 6-fold from 2015 to 2020. [1]
- Since wireless is largely a fixed cost business, Verizon is unlikely to see costs rise meaningfully as a result of the new value-added services and higher data caps and the given pricing increases should allow the carrier to comfortably manage margins. This is also evident from the trajectory of Verizon’s margins in recent years. Despite the perceived increase in competition and the lower per gigabyte (GB) data pricing over the last 5 years, Verizon has actually increased its adjusted margins. While this is partly due to the decline in smartphone subsidy costs and the shift to equipment installment plans, it is nevertheless noteworthy.
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