As somewhat of a leader in the domestic wireless space, Verizon Wireless is looked upon by many as the carrier to watch when it comes to the latest network initiatives. During the carrier’s third quarter conference call, company executives provided insight into a number of network plans the carrier is currently juggling, including network densification, voice over LTE and how it looks at the prepaid market.
Verizon Communications CFO Fran Shammo noted during the earnings call that beginning with the third quarter “all of our efforts have gone into the capacity and densification,” with those efforts focused on markets being impacted, including Chicago, San Francisco and New York. The carrier reported an increase in wireless capital expenditures for the quarter to $2.45 billion, which was its highest quarterly capex spend for the year to date and comes as the carrier is aggressively beginning to layer in LTE capacity support through its 1.7/2.1 GHz spectrum holdings.
Shammo explained that the additional spectrum resources could also result in increased speeds across the carrier’s network with the possibility of bursts up to 30 megabits per second for customers running LTE across the 1.7/2.1 GHz band, though he did downplay claims of up to 80 Mbps being witnessed by some noting “there’s no one on the network, so I think it would be irrelevant for me to speak about that.” Verizon Wireless continues to claim that its LTE network provides download speeds of between five and 12 Mbps.
Preparing for VoLTE
That densification is also seen as key for the carrier’s plans to rollout VoLTE services, which it expects to begin rolling out during the first half of next year. However, to fully exploit the spectrum benefits of the technology the carrier will need to match its current CDMA-based 3G footprint, something the carrier expects to happen by year end.
“We will not rush the VoLTE launch until we are sure that when you connect up a VoLTE voice call, it will be very, very similar to a 3G CDMA call, because that’s what our customers expect,” Shammo said. “They know what the CDMA footprint is. They know where they can call. … We have to make sure that our VoLTE experience is the same and that’s why we have taken such a long time and we believe that when we get to the first half of next year, the network will be ready, the experience will be very, very similar and that we will be ready to roll this out.”
Shammo said the carrier plans to have a VoLTE-enabled handset on the market by the end of this year. As for device pricing, Shammo explained that while eventually removing CDMA support from a device could lower overall pricing, the expected inclusion of newer technologies will likely counter that potential change resulting in similar costs to both consumers and the carrier.
Market share issues
As for its quarterly results, Shammo boasted of its wireless division’s 927,000 net direct postpaid customer additions, but noted it could have been a stronger quarter if the carrier had not been constrained by the supply of Apple’s iPhone 5S device that launched during the final weeks of the quarter. That constraint continued into the first part of the current quarter, which might impact those results as well.
However, despite the relatively strong customer growth, especially around smartphone sales , Shammo cited a potential shift of its low-end and basic phone customers switching to either Verizon Wireless’ prepaid offering or to rivals that have aggressively targeted the no-contract space. This was witnessed by Verizon Wireless’ churn results increasing both sequentially and year-over-year.
“Now, I can’t sit here and tell you that we don’t lose customers to our competitors,” Shammo explained. “If you look at some of the other things that we were dealing with, I mean we do have some low end, if you will, some single-line basic phone customers and older 3G smartphone customers. And what we see the shift here is, we are seeing them shift out of postpaid into our retail prepaid products, but we are also seeing some of them shift off to some of the lower end price plans of our competitors.”
Despite the shift, Shammo remained convinced that Verizon Wireless will regain the top growth spot amongst its rivals for the quarter as well as gain market share. T-Mobile US bested its larger rivals in overall customer growth during the second quarter, though Verizon Wireless continued to lead the way in postpaid net additions.
As for dealing with the prepaid segment, Shammo said the carrier will continue to focus those efforts on its 3G network in an attempt to keep that network as full as possible while its postpaid customer base continues to migrate to its LTE service. With Verizon Wireless no longer investing in expanding 3G coverage, the carrier expects to continuing squeezing margins out of those legacy operations. That continued marketing focus on the prepaid space will also be likely driven by Verizon Wireless’ wholesale partners as the carrier is looking to keep a premium image for its direct brand.
Dialing back cable partnership
One area Verizon is pulling back is with its partnership with cable operators. As part of its deal to acquire spectrum licenses from a handful of cable operators, the parties agreed to allow for the cable companies to sell Verizon Wireless’ services on a wholesale basis and for all parties to work on the development of technology integrating wireline and wireless products and services.
Shammo explained that while there was still a distribution agreement in place, the joint marketing portion of the deal had been terminated. This move was enabled by the tighter integration of Verizon’s various operations, including the pending deal to acquire Vodafone Group’s 45% stake in Verizon Wireless for $130 billion and its FiOS wired broadband service.
“What you are going to see here is, as we talked about Verizon Wireless, the acquisition of Verizon Wireless, we now get to more of a converged middle with our consumer products between FiOS and wireless and we no longer have the artificial wall up between the affiliate transactions or anything like that,” Shammo said. “So I won’t talk about what you will see, but I think what you will see from us is a move forward of bringing to the customer the best product available between wireline and wireless.
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