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Is Apple iPhone 7 Launch Impacting Verizon’s Wireless Margin?

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Verizon’s wireless EBITDA margin growth in 3Q16

In the previous part, we discussed Verizon’s (VZ) consolidated EBITDA (earnings before interest, tax, depreciation, and amortization) margin over the last few quarters. Verizon’s wireless segment generated $9.9 billion of adjusted EBITDA, which was flat compared to the same quarter last year. Additionally, the wireless segment’s adjusted EBITDA margin was 44.9% in 3Q16, up from 43.2% a year ago.

The slower smartphone upgrade rate is helping the telecom companies in maintaining a lower churn rate, which in turn is helping them in growing their EBITDA margins. The lower churn helps these companies in saving on acquisition costs involved with acquiring a customer. In 3Q16, upgrades were negatively impacted by the launch of Apple’s (AAPL) iPhone 7 in September 2016 and the total recall of Samsung Note 7. As a result, Verizon’s wireless segment saw its adjusted EBITDA margin fall from 47.5% in 2Q16 to 44.9% in 3Q16.

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Apple’s iPhone 7 launch is impacting Verizon’s operating margin negatively in 3Q16

The recent release of Apple’s iPhone 7 means an increase in churn rates for all telecom providers. This increase was mainly due to many customers changing their carriers to get the best wireless plan. In 3Q16, Verizon lost 36,000 postpaid phone subscribers for the first time ever. However, postpaid phone net additions by Sprint (S) and T-Mobile (TMUS) were 347,000 and 851,000, respectively, which came at the expense of Verizon and AT&T (T).

The increase in churn rate has a negative impact on Verizon’s operating margins, which could be a cause of concern for investors. Continue to the next part for a look at Verizon’s postpaid phone subscriber net additions.

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