Verizon, America’s largest wireless carrier, likes to tell investors that the tens of billions of dollars it is spending to build out its 5G service will be “rocket fuel” for growth.
Yet the promise of a lightning-fast network connection did not stop thousands of its most lucrative mobile phone customers from hanging up during the first quarter. The company lost a net 178,000 “postpaid” mobile phone subscribers in the first three months of this year. Because they are billed on a recurring monthly basis, postpaid users are fiercely fought over as a source of stable revenue.
Stakes are high in the battle for 5G customers. Verizon and rivals T-Mobile US and AT&T have all spent heavily to build faster networks. They have loaded up on more debt as a result. Verizon has already sold more than $31bn in bonds this year to pay for its $45bn bid for 5G airwaves. Net unsecured debt now sits at $137.4bn, or 2.9 times adjusted ebitda. It spent more than $1bn on interest expenses in the first quarter.
Companies say that increased revenues will help to pay for 5G investments. While T-Mobile’s strategy has been to undercut its rivals on pricing to win new customers, Verizon has so far taken the high road. It relies on premium wireless pricing to generate significant free cash flow. If it continues to bleed customers, however, it may be forced to cut prices to compete.
Still, Verizon does have an ace up its sleeves: broadband. The pandemic has fuelled brisk demand for fast and reliable home internet service. Nearly 38m adults shopped for a provider in the US last year, spending $34bn in the process, according to BroadbandNow.
Verizon has been a beneficiary of this boom. It added a net 98,000 subscribers to its Fios internet service in the first quarter. The company should take advantage of this win and bundle its broadband and mobile services more aggressively. Keeping hold of subscribers is the key to fulfilling its 5G dreams.If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button ‘Add to myFT’, which appears at the top of this page above the headline