uploads/2017/04/Telecom-Verizon-1Q17-Wireless-EBITDA-1.png

Why VZ’s Wireless Earnings Margin Could See Pressure in 1Q17

By

Updated

Verizon’s Wireless segment’s 1Q17 EBITDA growth

In the previous article, we discussed the consolidated EBITDA (earnings before interest, tax, depreciation, and amortization) growth that we can expect from Verizon (VZ) in 1Q17.

Verizon’s wireless segment’s EBITDA margin could be affected by the elevated competitive intensity in the industry due to the introduction of unlimited plans in 1Q17.

Earlier in 4Q16, Verizon’s Wireless segment generated $8.6 billion in adjusted EBITDA, a 5.2% fall year-over-year (or YoY). Additionally, its Wireless segment’s adjusted EBITDA margin was 36.9% in 4Q16, a contraction from 38.4% a year ago.

This contraction in the company’s EBITDA margin was due to its heavy wireless promotional activity and the elevated competitive intensity in the industry during the quarter. The company’s earnings were also hurt by higher equipment and services costs.

Article continues below advertisement

Apple’s iPhone 7 launch hurt Verizon’s margin in 4Q16

Verizon has attempted to maintain its pricing, but it’s still been somewhat aggressive in competing with Sprint (S), T-Mobile (TMUS), and AT&T’s (T) unlimited offers and free iPhone promotions following Apple’s (AAPL) iPhone 7 launch. This competition is expected to continue in 2017.

T-Mobile continues to be an aggressive share taker. Its latest Uncarrier move embeds taxes and fees into the base prices for data plans, effectively lowering prices once again. T-Mobile reported 933,000 postpaid phone net additions in 4Q16. 

In the same quarter, AT&T lost 67,000 postpaid phone subscribers. However, Sprint’s and Verizon’s postpaid phone net additions were 368,000 and 167,000, respectively.

In the next article, we’ll look at how much Wireline segment EBITDA growth we can expect from Verizon in 1Q17.

Advertisement

More From Market Realist