uploads///Verizon EBITDA margins

Verizon warned that its profits will come under pressure


Dec. 12 2014, Updated 8:00 a.m. ET

Sprint’s tactics are putting pressure on Verizon

In the last part of this series, we discussed how Sprint (S) is resorting to steep price cuts in a bid to gain net subscribers. Sprint’s tactics are hurting Verizon (VZ) and AT&T’s (T) margins.

On Monday, Verizon warned that its profits will come under pressure in the fourth quarter. It started to offer discounts in order to gain subscribers. The company also mentioned that it started to see more customers leave its network for rival networks.

These aren’t good signs for Verizon. We’ve already seen a decline in Verizon’s earnings per share (or EPS). As the above chart shows, Verizon’s EPS declined from $0.91 per share in 2Q14 to $0.89 per share in 3Q14.

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AT&T and T-Mobile are feeling more pressure

In addition to Sprint, AT&T and T-Mobile (TMUS) have also started to lure customers with attractive family plans. Recently, AT&T made its Mobile Share Value plan more attractive for families. The plan offers twice as much data as it offered before. T-Mobile offers 1 GB, or gigabit, of 4G LTE data for $50 per month on every line under its Simple Choice plan.

Verizon’s announcement caused its shares to fall more than 1% in after-hours trading. Continued price wars in the telecom industry have put more pressure on Verizon’s shares this year. Its shares underperformed the SPDR S&P 500 ETF Trust (SPY). SPY broadly covers the S&P 500 Index. SPY is up 10% this year. Verizon’s shares declined slightly this year.


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