Verizon ( VZ ) primarily competes with Sprint ( S ) and AT&T ( T ) in the mobile subscription plan business. The average monthly fee that Verizon's postpaid wireless subscribers pay for wireless service, excluding data service, has been consistently declining over the past few years. The decline in pricing is mainly attributable to nearing saturation of the U.S. cellular market, creating fierce competition among telecom players to maintain and increase their market share. A successful Verizon-iPhone deal and rising data revenues from smartphone penetration could, however, offset declines in average mobile plan prices.
While we anticipate Verizon's average monthly mobile subscriber plan price will decline to $32.30 by the end of our forecast period, Trefis members project that the price will increase past $40. The member estimates imply an upside of 6% to our price estimate for VZ stock.
We currently have a $36.62 price estimate for Verizon stock, roughly in line with market price.
US Mobile Penetration Nears Saturation, Competition Rising
By 2009-end, mobile penetration in the U.S. market stood around 91%. This indicates stiff competition among mobile players to grab a piece of the remaining market.To minimize customer churn and attract new customers, service providers are offering discounts and promotional offers like free minutes, free calls to other subscribers, and roll-over minutes. This, in turn, puts pressure on mobile subscriber plan pricing.
The latest wireless industry semi-annual survey by CTIA estimates that wireless subscriber connections have crossed 292 million as of June 2010, an increase of 16 million from June 2009. Customers are opting for wireless mobile over cable landline because of the associated savings. If companies stop reducing prices, there would not be the same incentive for consumers to move to wireless.
iPhone and Smartphone Penetration Could Improve Pricing
Thanks to Verizon's recent iPhone launch and rising smartphone penetration, Verizon is adding a whole lot of new customers and is also seeing an increase in its data revenues. This could help offset the decline in voice pricing. As per the company's Q4 2010 results, smartphone penetration of Verizon's postpaid retail base increased to 26% in Q4 of 2010 from 15% in the same period of the previous year. (See: LTE & iPhone, Verizon's Recipe for Higher Smartphone Penetration )
Trefis Community Forecast
Trefis members forecast Verizon's monthly mobile subscriber plan pricing will increase from $37 in 2010 to nearly $41 by the end of our forecast period, compared to the baseline Trefis estimate of a decrease towards $32 during the same period. The member estimates imply an upside of 6% to our $36.62 price estimate for Verizon stock.