When it comes to speed and reliability, Verizon Wireless (NYSE:VZ) is still the best carrier in the U.S., according to a study from RootMetrics. Verizon's mobile speeds were consistently faster in U.S. cities, besting all three of its major rivals, Sprint (NYSE:S), T-Mobile (NASDAQ:TMUS), and AT&T (NYSE:T).
As long as Verizon's network remains superior, it may be able to fend off attempts to commoditize the wireless industry and curtail its prices.
Verizon's LTE network produced download speeds of 10 Mbps or more in 122 cities in the second half of 2014, compared to just 96 cities for T-Mobile, and 93 cities for AT&T. Unfortunately for its subscribers, Sprint was largely uncompetitive, with average download speeds hovering around just 6 Mbps in most markets. Although Sprint's new Spark network has shown impressive speeds in select locations, RootMetrics did not register a single major market where Sprint's service was 20 Mbps or better.
Given the growth of 4G-equipped smartphones, LTE service has become the standard for the wireless industry, and Verizon's forward-thinking, aggressive rollout of its LTE service appears to have served it well.
Verizon has been less willing to compete
Because of that superior service, Verizon has largely ignored its rivals' new initiatives and kept its premium pricing in place.
In December, for example, T-Mobile announced "Data Stash" -- a new feature that allows its subscribers to rollover their unused data from one month to the next. Although it did not reduce the cost of service up-front, a rolling bucket of data could incline subscribers to select less expensive, smaller data plans, and avoid overage charges during periods of excessive use. Perhaps in effort to prevent subscriber loss, AT&T almost immediately countered T-Mobile's offer, announcing its own rollover data program in January.
Verizon, however, completely ignored it. Its CFO, Fran Shammo, dismissed the possibility outright, stating pointedly that the company was not looking to compete on price. Similarly, Verizon has either been slow to adopt, or has outright avoided, other attempts to shake up the industry.
Last fall, for example, it refused to participate with Apple on the new iPad SIM card. The Apple SIM allows owners of 4G iPads to switch between AT&T, T-Mobile, and Sprint service on a whim -- but not Verizon. Interested customers can still get a 4G iPad to run on Verizon's network, but in a way that doesn't encourage direct price competition.
Verizon was initially reluctant to embrace phone financing plans, and even though it has relented, it's still less aggressive in its promotion. AT&T, T-Mobile, and Sprint have all, at various points in time over the last year, offered to buy out subscribers' plans with rival providers -- Verizon has largely avoided that tactic.
Verizon's premium strategy is working
Verizon's unwillingness to compete on price hasn't cost it too many subscribers. It isn't growing as quickly as T-Mobile, but Verizon did add more than 2 million postpaid net adds last quarter. Still, Verizon saw higher rates of churn (1.14% last quarter compared to 1% in the third), and lower margins, suggesting it isn't completely immune from competition.
So long as it can maintain its premium network, it may be able to justify its premium pricing. RootMetrics' findings are great for shareholders, but should its quality slip, it could find itself forced to rethink its strategy -- and perhaps compete on price.