Verizon faces ‘lose-lose’ situation amid aggressive AT&T promotions, analyst says bearish

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Aggressive wireless promotions by AT & T’s Inc. could put Verizon Communications Inc. in a “lose-lose” situation, according to one analyst. When AT&T T, -0.62% launched attractive promotional offers late last year in an attempt to retain existing subscribers, there were questions about whether the company would be able to maintain these offers for an extended period of time. But after AT&T posted better-than-expected wireless results last week, showing both subscriber growth and a bullish margin, the company is likely to “feel less pressure now to change course,” Moffett Nathanson analyst Craig Moffett reasoned. .

See also: AT&T earnings, revenue surge as company sees some recovery from COVID-19 That’s not good news for Verizon VZ, -1.01%, according to Moffett, as sustained promotions from AT&T could force others wireless service providers to do the same. Verizon’s subscriber trends have suffered as the company took a “wait” approach to AT&T promotions thus far, but now the company is in a tough spot, he said. “[I]f Verizon now concludes that AT & T’s promotional stance is to continue, they face a lose-lose option, ”he wrote. “Keep waiting and your growth will suffer even more. Answer, and your growth will rebound, but your profitability will decline. There are no good options. “There are already signs that AT & T’s approach is leading to lower wireless prices elsewhere in the industry overall, which could pose more problems for Verizon. Comcast Corp. CMCSA, + ​​0.60% recently lowered the prices of its family plans, meaning that the company’s “unlimited service is now cheaper than, or at least on par with, Verizon’s service for plans of all sizes,” Moffett wrote. It still has He doubts whether Comcast can make money through its new pricing and the “durability” of AT & T’s margin performance given its promotional stance, but is also concerned that “a period of increased competitive intensity now seems more likely.” As a result, it lowered Verizon’s stock rating to neutral from buying on Tuesday, arguing that various components of the bullish view it presented in a December update no longer apply perfectly. On the one hand, while you still believe that Verizon will be able to increase average revenue per user (ARPU) this year by pushing upgrades to unlimited plans and getting subscribers to pay for Disney + through a partnership agreement, there is also “an increased risk of a forced response to AT&T promotion that could hurt ARPU. ” Verizon shares were down 0.9% in trading Tuesday morning. Moffett sees other reasons to hesitate as well. In December, it expected Verizon to get “more spectrum for less” in a crucial auction for midband wireless spectrum, a prediction that “couldn’t have been more wrong” as aggressive bids at the auction drove prices up and away. Verizon with a “very battered” balance sheet. Also, while Verizon is still a “cheap stock,” he sees it as “less” now that the company had to spend lavishly on the spectrum needed to build its 5G network. And even with Verizon’s large spectrum launches, it will be time before the company can access the new spectrum and add it to its network. That gives T-Mobile US Inc.’s TMUS an advantage, -0.22%, which already had a substantial amount of mid-band spectrum before the auction and has started to roll it out. Read: AT & T’s transition to 5G means huge up-front costs. And you need HBO Max to be successful. “AT&T lags behind not just T-Mobile, but Verizon as well, in densifying its network for 5G,” Moffett continued, opting to keep its sales rating on AT&T after some consideration. Despite expectations that AT&T will face easier comparisons over the next six months, he expressed “concerns about AT & T’s weak positioning in 5G” and “reservations about the quality of its earnings / accounting changes in the first quarter.”