What's Happening in the US Telecom Industry?

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Part 14
What's Happening in the US Telecom Industry? PART 14 OF 18

Why Verizon and AT&T Should Take T-Mobile Seriously

T-Mobile makes Verizon a laughing stock

T-Mobile (TMUS) mocked Verizon (VZ) for posting 1Q17 earnings that missed consensus expectations. Verizon said it lost more than 300,000 postpaid subscribers, a lucrative customer base for any carrier. T-Mobile’s blog post and a series of tweets by its CEO John Legere made fun of Verizon’s loss despite its massive investments such as acquiring AOL and Yahoo.

Verizon and AT&T (T) have largely borne the brunt of T-Mobile’s un-carrier strategies, and their future doesn’t look safe. In the 1Q17 earnings season, Verizon became the first national wireless carrier to release its results, and those results highlighted the challenge that industry giants like it are facing as underdogs T-Mobile and Sprint (S) continue to upend the rules of the game.

Why Verizon and AT&amp;T Should Take T-Mobile Seriously

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Un-carrier strategies causing big boys to sweat

Verizon’s loss of 300,000 postpaid subscribers wasn’t only a major reversal from the comparable period a year earlier, but it also missed the consensus estimate by miles. On average, Wall Street was expecting the company to add 222,000 new retail postpaid subscribers after it joined its peers in offering unlimited data plans.

The loss seemed to have not only been caused by Verizon’s delayed entry into unlimited data, but also by T-Mobile’s aggressive March promotion that handed a free iPhone 7 to customers who switched from rival carriers. It was a short-lived but sweet offer whose impact seems to have devastated competitors as indicated by Verizon’s earnings and customer numbers.

The above chart shows how Verizon’s revenue in 1Q17 deviated sharply from the consensus estimate.

Diversification is a long stretch

While Verizon and AT&T, which is seeking to acquire Time Warner (TWX), have recently shown that they are looking for a new life outside their traditional domains by buying media assets, the phone carrier business will remain their bread and butter for a long time. Thus, T-Mobile’s disruptive practices are a cause of concern for competitors and their investors.


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