Verizon ( VZ ) could see its data revenues climb faster than expected next year as a result of increasing data usage among mobile users and the potential addition of the iPhone to Verizon's smartphone lineup. Verizon competes with Sprint Nextel ( S ), AT&T ( T ), Comcast ( CMCSA ), and Time Warner Cable ( TWC ) in the mobile market.
While we expect data ARPU (average revenue per user) to reach $22 by 2013, the Trefis community predicts this will climb to around $25 and translate to around 5% upside to our Trefis price estimate of $31.69 for Verizon's stock . Both of these estimates could be conservative if the migration to smartphones and growth in ARPU outpaces our current estimates as outlined below.
Wireless Data Market
The wireless data market is still in the early days of growth relative to its potential and so there is ample room for growth in data ARPU. We expect leading telecom players like AT&T and Verizon to benefit handsomely from the growth in data use, which carries much higher ARPU than basic voice services. Chetan Sharma, an independent telecom industry analyst, predicts that mobile data traffic in North America and Western Europe will exceed an Exabyte (10^18) in by the end of 2010.
Improving Technology Results in Higher Data Usage
As 3G technology spreads globally, mobile data usage will continue to grow. According to ABI Research, from 2009 to 2015 data usage in Western Europe and North America is expected to increase at a compound annual growth rate (CAGR) of 42% and 55% respectively.
In a recent article, we wrote how Verizon has an early market entry advantage in 4G LTE network deployment and how the availability of LTE-based smartphones will lead to higher ARPU growth for Verizon. (See Verizon Higher Data Revenues From 4G Launch )
Verizon iPhone Adds Catalyst
In addition to this, the much anticipate iPhone should further aid Verizon's data revenue growth. iPhone users are among the highest users of data and AT&T earns an estimated ARPU between $80-$90 per month. This compares to an average overall ARPU of around $18 for Verizon so clearly an influx of iPhone users could move Verizon's ARPU higher.
This bodes well for Verizon as many iPhone users are unhappy with their current service provider AT&T, according to recent surveys. These surveys suggest that many of these users could migrate to Verizon once it carries the iPhone. In addition to this, many current Verizon subscribers who do not have smartphones could join data plans thus accelerating the penetration of smartphones.
Trefis members forecast that SMS & Internet Revenue per Verizon Mobile Subscriber will increase from ~$20 per month in 2010 to ~$25 per month by 2013, compared to the baseline Trefis estimate of an increase from under $18 to $22 during the same period. Using this trend line, the member estimates imply an upside of 5% to the Trefis price estimate for Verizon's stock, which may be conservative if the above scenarios play out.