Those companies have been aggressively pitching their unlimited data plans which has had a negative impact on Verizon’s growth. To make things worse, they were joined last year by AT&T Inc. (NYSE:TB), which started offering unlimited data plans to its customer who also signed up for DirecTV satellite service.
Numbers Don’t Lie
The unlimited data competition has made a difference. Verizon added only 2.3 million monthly customers in 2016. It added 4.5 million in 2015. Now the company projects flat profit and sales growth for 2017.
Verizon has relied for years on trying to get its customers to pay for data based on usage. As recently as last month Verizon’s finance chief said unlimited data as “not something we feel the need to do.” That was then. This is now.
A Better Mousetrap
Now that Verizon is jumping back into the “unlimited” pool, it wants to make sure it offers an attractive and competitive product. For example, Sprint and T-Mobile’s unlimited plans have allowed only lower quality video streaming. Verizon says its new plan will let customers stream HD video.
Verizon has said it may slow speeds for customers in certain instances if they have consumed more than 22 gigabytes of data in a single month. According to Verizon 66% of its customers use less than 5 gigabytes of data per month. Verizon’s new unlimited plan costs $80 per month for 1 line, $70 per line for 2 lines, $54 per line for 3 and $45 per line for 4.
Verizon’s new move has already started a price war of sorts. In addition to unlimited data the company said it would offer a free smartphone to customers who switched over to the new plan. T-Mobile responded by saying its plans would now include HD streaming to match Verizon. It also announced a promotion featuring 2 lines for $100 per month.
A price war is the last thing the industry needs when it comes to profit margins. That’s why Verizon resisted as long as it did. Now that the fight is on, analysts expect pressure to drive down costs and slower growth. In response to the new competition, shares of all 4 carriers were down in trading Monday.
Related: BROADBAND FROM SPACE IS COMING
Customers Versus Investors
Verizon’s return to unlimited data and the resulting price war is great news if you are a Verizon customer. But what about Verizon investors? Turns out the news for investors is not so positive. Verizon shares ended the day off 0.88% down $0.43 closing at $48.55. On the year Verizon is down about 10% making it the Dow’s worst performer so far in 2017.
With both T-Mobile and Sprint up so far this year there’s the added fact that the two have been rumored to be considering a merger attempt. Then there’s AT&T with its acquisition of DirecTV which competes with Verizon’s FiOS broadband TV service.