At first glance, it's easy to chalk up Verizon's (VZ 0.90%) second-quarter net loss of 215,000 postpaid wireless customers to price hikes put in place during the three-month stretch in question. Fortunately, the company had a better showing on the business front, picking up (again on a net basis) 430,000 postpaid customers. Still, following its first-quarter attrition of 292,000 postpaid consumers that preceded any major price hikes, shareholders have good reason to be concerned. That's particularly true in light of the fact that competitors AT&T (T 1.10%) and T-Mobile (TMUS 0.92%) managed to add 813,000 and 380,000 postpaid accounts, respectively, during the same quarter. Clearly, it can be done.
Verizon's woes may go well beyond competing plans from the industry's other two established powerhouses, though; T-Mobile's and AT&T's pricing plans aren't dramatically different, in fact. Rather, the market's cost-conscious crowd is slowly switching to a couple of wireless service providers that should concern T-Mobile and AT&T just as much as it does Verizon.
Those alternative wireless services? For most consumers, it's your local cable TV company.
Unexpected disruptors
You're reading that right. If you're a current customer of Charter Communications' (CHTR 2.04%) Spectrum or Comcast's (CMCSA 1.57%) Xfinity, you're likely eligible for surprisingly cheap wireless service offered by either of the two brands. Xfinity's plans start at $15 per month, but even a robust plan can cost you less than $50. Spectrum's plans are in the same ballpark, with two lines offered at $30 per month for customers willing to sign a one-year contract.
And odds are good you're a customer of at least one of the two giant cable telcos. The two collectively account for about two-thirds of the industry's customers, after all, according to data from Leichtman Research Group.
Consumers are clearly making their way to these more affordable plans, too. Charter's Spectrum added 329,000 wireless consumers to the fold last quarter, bringing its headcount to a little over 4.1 million customers. Factor in its business mobility lines, and the figure nears 4.3 million. Comcast's Xfinity picked up 317,000 wireless customers during the same three-month stretch to bring its customer count to just over 4.6 million.
Data source: Comcast Corp. and Charter Communications Data is in thousands of subscribers.
Even Dish Network (DISH) and Altice (ATUS 3.14%) are in the business. Altice is serving 231,000 wireless accounts as of the end of June, and Dish's Boost Mobile boasts nearly 7.9 million subscribers (though they're handled by T-Mobile's infrastructure). Even taking Dish's Boost out of the equation, that's more than 9 million consumers' and small businesses' wireless needs being met by cable television companies.
Or look at it this way: That's more than 9 million accounts that just a few years ago -- before cable companies got into the wireless business -- would have been Verizon's, AT&T's, or T-Mobile's. With a lower-cost option on the table, though, the industry's old guard is clearly on the defensive. Verizon just happens to be highlighted as the laggard of late because its recent price increases took the most obvious recent toll.
Past time for a bold, direct response
It's not a perfect apples-to-apples comparison. Xfinity and Spectrum rely heavily on their cable and broadband lines to handle their wireless services' connectivity work while a customer is within radio reach of this infrastructure. That's infrastructure that Verizon and the wireless industry's other stalwarts just don't have (at least not yet -- Verizon continues to invest heavily in its fiber-optic network). Only once an Xfinity or Spectrum wireless subscriber moves out of reach of this infrastructure are they passed off to a more conventional mobile network. It remains to be seen how long this approach will support the ever-growing data needs of the ever-growing usage of mobile devices, but it's working well enough for now.
One thing is clear: The traditional wireless carriers underestimated how disruptive this new type of wireless competition could be, particularly on the price front. Now they're paying the price, in the form of slowing growth at a time when the market itself is already saturated. Pew Research reports that 95% of U.S. residents already own a cellphone, adding that 85% of them already own smartphones.
Current and would-be shareholders of Verizon, as well as its two biggest rivals, should be looking for ways these players are specifically responding to this unexpected, low-cost competition. Thus far, they've not done enough.
