As wireless users hang onto their phones longer, some operators are shifting their promotions to encourage users to bring their existing device with them when they switch carriers. And that trend, according to Deutsche Bank Research, could create concerns for Verizon.
“It’s no secret that handset upgrade cycles are lengthening, with the shift to EIP (equipment installment plans) and ‘no-subsidy’ rate plans incentivizing customers to hold onto their phones for longer,” the Wall Street analysts wrote in a recent note to investors. “In this context, we expect BYOD to become a greater focus of wireless sales going forward (for context, BYOD makes up ~10% of postpaid activations for AT&T, and a mid-teens % at T-Mobile). We flag two key data points we believe Wireless investors should be mindful of, as each of these increase the risk of churn at bigger incumbents (Verizon in particular).”
The Deutsche Bank analysts pointed to two new promotions specifically encouraging Verizon customers to dump the carrier and take their Verizon phone to another provider:
Several months after promising such a service, Comcast’s Xfinity Mobile said it is now supporting a bring-your-own-device model that allows customers to activate the cable operator’s wireless service on their existing phones (though only select phones are supported). Comcast’s wireless service is an MVNO of Verizon.
And Sprint continues to offer a full year of completely free unlimited wireless service to customers who bring their own phone to the operator. Sprint is primarily targeting the offering at Verizon customers.
It’s no secret that wireless customers may be more inclined to make use of BYOD offerings because they are holding onto their existing phones for longer periods of time before upgrading to a new phone. Indeed, according to a new quarterly survey from Wall Street research firm Cowen and Company, the percent of postpaid respondents who plan to hold onto their phone for two years or more rose to 34.1%, notably up from the 23% who said they would in the same survey three years ago. The Cowen analysts added that the trend appears to be driven by the introduction of equipment installment plans, which allow wireless users to more clearly see how much their phones cost.
Although the analysts at Deutsche Bank are warning that Verizon may be facing some BYOD headwinds, other Wall Street analysts predicted the operator will report solid fourth-quarter numbers. “We expect that the wireless competitive environment stabilized in Q4,” wrote the analysts at Scotiabank Equity Research in a recent research note to investors. “In Q4, we believe VZ’s postpaid net additions will benefit from lapping headwinds related to tablet churn and adding Apple Watch subscribers, which will lead to a substantial improvement in YOY postpaid net adds. Furthermore, we expect phone net additions of 300K in the quarter (vs. 167K in Q4/16) driven by the new suite of iPhones and a relatively less intense competitive environment. With regards to ARPA, we expect to see continued sequential improvement in growth rate, at -3% YOY vs. -6% in Q3. Going into F18, we believe ARPA will remain flat for the year but achieve positive growth in the second half of the year.”
Verizon is scheduled to report its fourth-quarter earnings tomorrow.