Verizon Brings Back the Unlimited Plan
This past week, Verizon began offering an Unlimited data plan for the first time since July 2011, despite Verizon’s CFO saying a year ago that the unlimited model does not work. Verizon reestablished this plan as a response to the “price war” between cell phone service companies. David Eger, a senior equity analyst with Edwards Jones, commented that “Verizon was sitting out here as the only one that didn’t have an offering,” since AT&T, Sprint, and T-Mobile all offer unlimited plans, and Verizon realized it needed a similar plan to remain competitive. A main driver behind Verizon's specific decision to bring back unlimited data, as well as their general competitive strategy, is that last quarter T-Mobile added 857,000 and Sprint added 347,000 customers, while Verizon lost 36,000. Verizon hopes that their new plan will significantly change these numbers in the upcoming quarter.
Verizon’s new plan costs $80 for one line and $180 for four lines, which is expensive compared to Sprint and T-Mobile who offers the single line for $60 and $70 and the 4 lines for $160. Rounding out the competition is AT&T, which has an astronomical single line price of $100, though they have the same $180 price as Verizon for four lines.
Investors see many benefits, along with some negatives, in the new plan. For example, there has been a lot of excitement about the new plan, which is leading to new customers. Though the plan has only been around for a very short time, Verizon’s President of Operations John Stratton said at a Deutsche Bank conference earlier this month that “we’ve seen a pretty huge rush to unlimited.” In the past few years, the hot topic of conversation when it comes to cell phone carriers is no longer about which carrier provides the most data. Instead, it is about which carrier provides the fastest and most reliable service. This is where Verizon shines, and they have been getting a lot more attention from customers, investors, and the media.
There are two significant drawbacks for Verizon with this new unlimited plan. The first is that although they will be getting significantly more customers, their top paying customers’ bills will go down significantly. In other words, those customers that were using a ton of data––and frequently paying penalties when they exceeded their data allowance––will now be able to pay a flat fee for the unlimited data and avoid all penalties. A second drawback is that Verizon will now have to spend a lot of money on maintaining their super fast network. It is estimated that they will be spending $11.3 billion in the upcoming months to maintain the high speed network. That is a sizable sum compared to the $5.1 billion T-Mobile will spend.
The Verizon unlimited plan costs slightly more than T-Mobile, but that is fully justified because of the superiority of the Verizon network. In terms of how the plan will affect the other carriers, before debuting their unlimited plan, T-Mobile had 3 times as many new subscribers as Verizon. Since then, that number has dropped to as low as .8 times Verizon’s new subscribers. Given that they can no longer compete with Verizon by having an unlimited plan, T-Mobile is now trying to compete by reducing the number of customers that are leaving to other carriers, a metric commonly known as churn. From 2013 to 2016, churn fell from 1.69% to 1.3%, and if T-Mobile can maintain this, it is their best way to try to compete with Verizon.
I believe that now that Verizon has come out with an unlimited plan, customers from all other carriers will be flocking to Verizon. This is because not only is Verizon know to have the best overage, but now they also have all the data you want. Increasing revenue due to an influx of customers should be extremely beneficial for investors in Verizon too. In 2016, 10 trillion megabytes of data were used––and this is more than double the usage in 2014. This growth is expected to continue to grow with a growing appetite to watch YouTube videos, go on Facebook, and send Snapchats. At a time when data usage is on the rise, adding an unlimited data plan is inherently risky, but it’s a move that Verizon had to make to remain competitive.
