Verizon’s Dominant LTE Lead Draws New Customers In A Saturated Market

by Trefis Team
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Despite enjoying a commanding lead over rivals in the 4G LTE deployment arena, Verizon (NYSE:VZ) isn’t letting off the gas pedal anytime soon. The largest wireless carrier in the U.S. recently added six new markets to its ever growing LTE coverage, taking the tally to 497 LTE markets which is almost 95% of its existing 3G footprint. This keeps it on track to complete the initial nationwide LTE deployment by the middle of the year –  a full two quarters ahead of what the company had initially expected. After the end of the second quarter, Verizon will begin its second round of LTE deployment which will see capacity additions to existing markets through the use of small cells and the deployment of AWS spectrum which it acquired from the cable companies last year.

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LTE lead helps with net adds in a saturated market

While Verizon is nearing the end of its initial LTE deployment phase, closest rival AT&T (NYSE:T) isn’t expected to reach the same milestone before the end of 2o14. AT&T’s LTE network is currently available in about 210 U.S. markets and will cover about 250 million Americans by the end of this year. Sprint (NYSE:S) is way behind with its LTE coverage in all of 88 markets across the U.S. as compared to AT&T’s 209 and Verizon’s 497. With 4G LTE expected to dominate the wireless scene in the years to come, Verizon has done really well to earn this early lead by executing well on its network transition plans. As a result, the company has been exceeding expectations in recent quarters, adding a disproportionate number of subscribers at the expense of rivals.

The U.S. wireless market has become increasingly saturated with wireless connections having exceeded the population in mid-2011. This has made acquiring new subscribers, especially those that pay for the higher-margin data plans, very tough for the wireless carriers. Despite this, Verizon has banked on its better 4G LTE coverage to do well on the postpaid front in the recent quarters. Last year, Verizon racked up as many as 5.1 million postpaid net adds in 2012 versus AT&T’s 1.4 million for the full year. The trend seems to be continuing this year as well, with Verizon adding as many as 677,000 net postpaid subscribers during Q1 2013 – more than double AT&T’s postpaid net adds for the same quarter.

LTE adoption rises steadily

Verizon is also seeing LTE adoption rates rise steadily with both LTE smartphones as well as LTE Internet devices seeing a good uptick in volumes. The company sold about 5 million 4G LTE smartphones last quarter, which is more than twice as many as it did in the same period last year. This increased LTE adoption at the end of Q1 to 28% of its postpaid subscriber base, up from about 23% last quarter. LTE adoption seems to have picked up well with the launch of iPhone 5 and other LTE-capable smartphones such as the Galaxy S III, and Verizon will be looking to market its industry-leading LTE coverage better and drive LTE adoption rates further up.

The increased adoption of 4G will reduce dependence on Verizon’s 3G networks, which are under great strain due to heavy data usage by smartphone users. Also, LTE as a network technology not only supports higher speeds but is also more efficient than the current 3G networks at handling data, thereby improving margins by reducing maintenance and handling costs. It is therefore a good sign that almost 54% of Verizon’s data traffic is on its 4G LTE network already. As more people switch to 4G LTE-compatible smartphones, the higher LTE speeds will also see subscribers increasingly use data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for Verizon over the coming years.

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