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Why Verizon needs to be wary of increasing competition

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Verizon continues to lead the US telecom market

Verizon (VZ) continues to lead the US telecom subscriber market. According to a report from Cowen & Company and as the following chart shows, Verizon’s share in the US wireless market—in terms of postpaid and prepaid subscribers—is ~44%. AT&T (T) is second with a share of 39%. Sprint (S) and T-Mobile (TMUS) are smaller players in this market.

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Sprint desperately looking to gain net subscribers

However, the dynamics in the US telecom industry are constantly changing. Sprint resorted to major price cuts since its new CEO, Marcelo Claure, joined the company. In August, he introduced a $60 per month unlimited data, text, and voice plan. T-Mobile offers the same unlimited plan for $80 per month. Verizon and AT&T don’t offer unlimited plans.

He also targeted Apple’s (AAPL) iPhone users with attractive offers because they tend to use lots of data. Sprint started the iPhone 6 unlimited plan for $50 per month in September. The plan has an option to lease a phone—starting at $20 per month. Recently, Sprint announced that it would offer a plan where subscribers only pay half of what they’re currently paying to Verizon or AT&T—if they switch from those carriers.

Sprint still has large numbers of subscribers leaving its network. As a result, it’s desperately looking to gain net subscribers through price cuts. We discussed this aspect in Why Sprint wants to add postpaid phone connections.

However, Sprint’s tactic is having a negative effect on Verizon. Recently, Verizon warned that its margins will come under pressure in 4Q14. It’s seeing signs of subscribers leaving its network for rival networks. Verizon will need to be proactive to tackle increasing competition from Sprint and avoid losses in subscriber market share.

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