Verizon Communications (NYSE: VZ)’s Struggles and Potential Future Growth

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By Stefan Larson on July 28, 2014 Company, Consumer Staples, Technology & Software

For the past few quarters, Verizon Communications (NYSE: VZ) has continuously experienced strong financial performance. It’s revenues for its wireless and FIOS services are strong, and continue to be the company’s key top line growers. Verizon also has been developing its wireless section’s base of subscribers, and its growth has been progressing at a good pace with its best in class LTE network service. Also considering the FiOS network’s increasing penetration into the market, the company’s wireline section is promising as well.

Verizon’s Struggles in Wireless

Verizon’s wireless segment, EDGE, is facing increasing competition from AT&T (NYSE: T)’s wireless plan, NEXT.

Verizon’s wireless section has been a key driver in growing its overall revenue. In the second quarter of 2014, the top line growth year over year was 5.7%, and was supported by its wireless section’s growth year over year, which was 7.5%. The company also gained additional subscribers thanks to its LTE network and improved sales strategies for payment plans for devices. This added additional growth in Verizon’s revenue for the second quarter in 2014.

In this quarter, 7.1% of the company’s postpaid subscribers opted up under its EDGE program. Verizon’s sales strategy has also been responsible in gaining customers to switch to its EDGE plan. The More Everything plan give customer discounted offers to EDGE, and improved the EDGE program by 18%.

However, AT&T still beats out Verizon with its NEXT program. AT&T’s NEXT plan gives its customers the option of upgrading their phones once every year without any form of down payment.

In the upcoming year, both AT&T and Verizon will be facing pressure from T-Mobile (NYSE: TMUS)’s JUMP plan, which gives customers the option to upgrade up to twice a year.

Verizon continuously focuses on enhancing its network and expanding to compete against rivals. A strong LTE network is still the key driver of the growth of its wireless segment. The company recently expanded its new XLTE wireless technology to over 350 markets. XLTE uses the company’s AWS spectrum, and has doubled the capacity of its 4G LTE network. This allows Verizon customers to access the network even in densely populated areas. Compared to its rivals, Verizon will continue to grow and improve its wireless section’s performance through its 4G LTE network. So far, it is clear that Verizon is ahead in that race:

Even though the company already has greater coverage, Verizon is still willing to buy a large piece of the 600MHZ spectrum to further ensure its lead in the LTE network race. However, Verizon and AT&T face restrictions from the FCC in participating in the buying of spectrum holdings, since they already have a clear authority in spectrum holdings. Verizon has already filed a case to remove these restrictions.

Additionally, Verizon has been trying to strengthen its LTE network offerings, and is planning to launch in 2015 a multi cast technology in LTE. As of now, Verizon allows its customers to view on demand videos using its streaming technology, Unicast. The launch of a multi cast technology for streaming videos addresses the increasing demand of access to videos. With this technology, Verizon will improve in both broadcasting and network utility.