Verizon CFO Downplays Impact of Wireless Price War
Verizon’s financial chief said that he isn’t concerned that recent price cuts in the cellphone service business will hurt his company in the longer term.
“There’s still a lot of room to grow,” CFO Fran Shammo said, speaking at a Deutsche Bank technology conference.
Over the weekend, both AT&T and T-Mobile cut prices or increased data amounts for some customers. Shammo noted that a similar thing happened with voice calling in the past, where minute allotments went up but service revenue for the industry continued to grow.
Shammo said that the industry has learned over and over that paying large sums to steal each other’s customers is not a good business, something he said he learned back in the days of competition for long-distance phone service.
“We’re not going to buy customers,” Shammo said. “You have to earn customers.”
Shammo pointed to opportunities with Verizon’s existing wireless customers, noting half of its customers are using either a non-smartphone or one that only operates on its older 3G network. “Our upgrades will probably go up this year.”
The upgrade rate had come down at Verizon and other carriers as they shifted to tighter rules requiring customers to wait a full two years before getting a subsidy to buy a new phone.
On the tablet side, Shammo noted only about 8 percent of its customers have a tablet attached to their account. He also noted that businesses are shifting to tablets from laptops.
Shammo noted that Verizon’s wireless unit grew 8 percent last year. He did say that growth level is unlikely to continue given that it is already a $75 billion business.
“That’s going to slow over time,” he said.
Verizon’s move to buy out Vodafone to take control of Verizon Wireless opens up further opportunities, Shammo said, noting a just-launched promotion that gives new FiOS customers a discount if they use the company’s wireless service.
Additional spectrum is going to open up new opportunities in the wireless business, including in mobile video, he said.
Shammo also downplayed moves to rely on big trade-ins on older smartphones as well as the move to no-contract plans. While Verizon has its Verizon Edge program that allows more frequent updates, Shammo said it is being limited to highly credit-worthy customers.
“There is a lot of risk with the installment sale,” Shammo said. “We’re going to take a very conservative approach here.”
Last week, Verizon’s network chief, Nicola Palmer, said that the company plans to step up its use of a second swath of spectrum in order to add capacity in highly trafficked parts of its LTE network. It will also start routing voice calls over its LTE network, which Shammo said opens up new opportunities in video conferencing.
The capabilities of LTE-broadcast could allow more TV-like video services such as pay-per-view which will open new opportunities, he said, but added “the ecosystem will have to develop here.”
Business models, in particular, need to change. There is no way, Shammo said, that a mobile video service could generate enough revenue to pay several dollars per month to ESPN and other content providers.
As for his thoughts on a potential merger of T-Mobile and Sprint, Shammo reiterated the position taken by CEO Lowell McAdam.
“We’re really happy with four competitors,” he said.
Shammo also addressed the increasingly hot topic of so-called “peering agreements” with big content players such as Netflix.
“We’re in talks with Netflix,” he said, adding he is confident the two will reach a deal. “We’re very comfortable with where we are.”
Shammo said he isn’t concerned about a Time Warner-Comcast merger, saying Verizon competes against both today with FiOS.
“I’ll just compete against Comcast tomorrow,” he said. “We’re ready to compete with whomever.”
Shammo said that Verizon hopes to be active in upcoming spectrum auctions, noting that while the company has enough spectrum to meet needs for the next three to four years, spectrum will be constrained over the next 10 years and it isn’t often additional spectrum becomes available.