Verizon Suffers Subscriber Slowdown Amid Price War

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Verizon suffered its worst quarter of subscriber growth in more than six years amid intensified price competition from smaller rivals, adding pressure on the company's media and advertising ventures to take up the slack for a rapidly maturing wireless business.

Verizon Fios On Demand video service.
Verizon Fios On Demand video service. Credit: Verizon

The nation's largest wireless carrier signed up 442,000 total subscribers in the third quarter, falling far short of the 875,000 average of eight analysts surveyed by Bloomberg.

The results underscore a strategy by Verizon to protect profits in lieu of offering steep discounts. Third-quarter earnings excluding some items were $1.01 a share, Verizon said Thursday in a statement. Analysts predicted profit of 99 cents a share, the average of estimates compiled by Bloomberg.

With Sprint and T-Mobile leading a price battle, Verizon is facing the challenge of holding on to big-spending customers by emphasizing service quality over price. Sprint, which hired Verizon's former "can-you-hear-me-now" pitchman Paul Marcarelli for national TV ads, added 344,000 new monthly subscribers in the period.

Lucrative family-plan customers tend to be more loyal than single-line users and pay up to connect phones, tablets, Wi-Fi hot spots and even cars. T-Mobile and Sprint, the third- and fourth-largest carrier, respectively, introduced unlimited data plans to win over these families, many of which are anxious about running up big tabs watching videos on YouTube, Snapchat and Netflix.

Yet Verizon has no intention of selling unlimited-data plans, Chief Financial Officer Fran Shammo said on a conference call Thursday. The company will hold the line and "continue to be rational" about pricing, he said.

"Verizon's unwillingness and perhaps inability to offer unlimited data plans might be impacting its ability to hold onto its customers," Walt Piecyk, an analyst at BTIG, said.

To be sure, the arrival of unlimited-data plans from rivals hurt Verizon in the period, Mr. Shammo said in an interview following the call. So did the recall of Note 7 phones by Samsung and a lack of Apple iPhone supply.

Mr. Shammo said in the interview that he expects big improvements in the fourth quarter, when consumers head to the stores for holiday shopping and retailers will be stocked up. Mr. Shammo is retiring from Verizon on Nov. 1, after which Matt Ellis, a member of the Verizon finance team, will take over.

Verizon lost 36,000 monthly phone customers in the third quarter, down from a gain of 430,000 a year earlier. Analysts expected 294,000 new monthly phone customers, according to a Bloomberg survey. Third-quarter sales were $30.9 billion, a 6.7% decrease compared with a year earlier, the company said. Analysts predicted $31.1 billion on average.

The carrier added 36,000 FiOS TV subscribers, less than 42,000 a year earlier. Analysts predicted 59,000. The rate of monthly subscriber defections was 1.04%, compared with 0.93% a year earlier. Margin on wireless service earnings before interest, taxes, depreciation and amortization was 59.54%. Analysts predicted 59.60%. Capital spending will be at the low end of a $17.2 billion to $17.7 billion range, the company said. Excluding a 7-cent a share impact from the labor strike, Verizon expects full-year adjusted earnings to be even with 2015 levels.

As the wireless-service industry matures, Verizon is trying to turn the business in a new direction. Using go90, its video-streaming business, AOL's web properties and the pending purchase of Yahoo, Verizon is entering a mobile video and advertising arena to challenge Google and Facebook Inc.

Verizon said in its earnings statement that the $4.85 billion Yahoo deal should close in the first quarter of 2017. Mr. Shammo said Yahoo's post-deal disclosure of a 2014 hack of its subscribers could have a material effect on the deal, but said the company is still evaluating what it means to the transaction.

"It's going to take some time to evaluate this. So until then, we haven't reached any final conclusions around this issue," Mr. Shammo said on the call.

While it adds pieces like Yahoo, Verizon is also shedding businesses it no longer considers a focus. The company is in late-stage talks with one potential buyer of its data centers and expects to announce a decision on the sale in the coming weeks, Mr. Shammo said on the earnings call. According to an Oct. 5 note from Cowen & Co. analyst Colby Synesael, Equinix is the interested party, and the sale is imminent. MR. Synesael estimates the sale could fetch $3.5 billion.

-- Bloomberg News