Generally speaking, it's a good time to be a cell phone user in the U.S. Thanks in large part to T-Mobile's (NYSE: TMUS) big Un-Carrier push, which kicked off in earnest in early 2013, the domestic cellular industry has gotten a lot more competitive recently as carriers wage a price war and continue to add value to existing plans.
Not only are carriers and consumers quickly migrating away from the traditional subsidy model in favor of installment plans, service prices are also coming down in a big way. However, the largest carrier isn't caving in to competitive pressures as readily as its smaller rivals.
Sadly, your Verizon (NYSE:VZ) cell phone bill probably isn't going down anytime soon.
Word on the Street
Jefferies recently issued a research note after meeting with top Verizon executives, and Big Red's top brass continues to believe in conservative pricing changes, despite the intensifying competition.
That's not to say that the company is completely unwilling to budge. For instance, Verizon quickly responded to an AT&T (NYSE: T) change that gives users more data for the same monthly fee. For $40 per month, customers will get 3 GB of data instead of 2 GB, while for $70 per month, customers will get 6 GB instead of 4 GB. When looking at the changes on a price-per-gigabyte basis, that translates into a price cut. Verizon reacted within days, although its promotion applies primarily to higher cost plans ($80 to $100 per month), similarly increasing the data allowances at those price points.
Still, Verizon is taking a much more calculated approach, and plans to offer discounts to selected customers that may be at risk of switching to another carrier, all while making specific price changes where necessary.
Verizon won't buy you
Speaking at a Deutsche Bank tech conference in March, Verizon CFO Fran Shammo detailed the company's conservative approach to price changes:
So I think that where we stand is we are not going to buy customers. I think that you have to earn loyalty and loyalty is earned through providing a value package to your customers, making sure they get what they pay for. The network still is the number one reason why people leave you. It is not because of price. I mean there is price sensitivity in the marketplace that you have to respond to.
Verizon believes the quality of its network gives it stronger pricing power than competitors, which in turn helps preserve its margins. Verizon Wireless enjoys much higher levels of profitability than AT&T Mobility, Sprint, or T-Mobile. Fortunately for Big Red, RootMetrics just awarded Verizon Wireless the highest overall network score in terms of reliability and speed. It can't rest on its laurels though. For instance, T-Mobile has made incredible progress with modernizing its network.
So long as Verizon can keep its network advantage and pricing power, it won't be cutting prices.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of Deutsche Bank AG (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Why 2017 Was a Year to Forget for Verizon Communications Inc.
Falling revenue and declining subscribership early in the year knocked the telecom giant off balance.
Free TV on Your Mobile Phone? What's the Deal?
The battle for mobile supremacy is good for consumers, but may indicate telecom growth is finished.
3 Dividend Stocks That Cut Bigger Checks Than Verizon
Ford Motor Company, Cedar Fair, and Cheniere Energy Partners all have larger payouts than Verizon Communications, but that's not the only reason to consider these stocks for your portfolio.