Verizon named ‘biggest loser’ in AT&T promo melee

Verizon shares were down about 2% this morning after the Wall Street investment firm MoffettNathanson downgraded the stock, saying Verizon has been the “biggest loser” in AT&T’s steady series of wireless promotions.  

AT&T has been on an aggressive path of promotions for the past two years now, and over that time, AT&T has reaped the advantages of subscriber growth, but at the cost of cutting its free cash flow and dividend coverage forecasts, wrote analyst Craig Moffett in a report for investors Thursday.

With industry growth now showing signs of moderation, AT&T’s path to real growth is “no clearer now than it was then.” However, “the biggest loser in this strategy hasn’t been AT&T… it has been Verizon,” he wrote.

Verizon has done its best to “avoid being dragged into AT&T’s promotional abyss, but their efforts have been met with only limited success. They have seesawed between periods of promotionality and financial restraint, optimizing neither. They have recently pulled back sharply on promotions, a reversal of their approach in Q2, and have introduced a suite of lower priced plans instead. There are no easy answers,” Moffett said.

The report notes that any number of root causes may be behind the weak results and outlook for AT&T and Verizon, but it focused on these five areas: T-Mobile’s growing advantage in 5G, slowing overall industry subscriber growth, the steady rise of cable in wireless, the failure of 5G revenue streams to materialize and further deterioration in the business wireline segment.

T-Mobile reigns supreme

Analysts have opined at length about T-Mobile’s newfound strength in 5G, and Moffett continued in that vein, saying T-Mobile increasingly is recognized for having the industry’s best 5G network. It’s not just about network speed, either, he said. Network coverage and reliability are deemed better in third-party analyses as well.

Recent developments in spectrum suggest T-Mobile’s advantage is likely to widen even further, with T-Mobile all but certain to be the big winner in the FCC’s ongoing auction of 2.5 GHz spectrum. T-Mobile’s recent purchase of 600 MHz spectrum from Columbia Capital also gives it owner's economics as it was already leasing that spectrum, the report noted.  

Verizon is, by all accounts, well ahead of AT&T in densifying its network with small cells, Moffett said. “That’s arguably their best answer to T-Mobile’s coverage advantage arising from its lower frequency mid-band spectrum holdings, and it features prominently in Verizon’s pleas that they will retain (or regain) the mantle of ‘best network.’ AT&T hasn’t articulated a cogent response,” he said.

Indeed, at a recent Cowen investment conference, Verizon SVP Adam Koeppe said once Verizon gets its C-band 5G network (about 250 million POPs) deployed by the end of 2024 and combines that with its CBRS spectrum and mmWave spectrum, it will have the “best 5G network period.”

It bears noting that Moffett has not been a fan of Verizon’s millimeter wave strategy and has on more than one occasion pointed out the shortcomings of the technology, which is great for speed but terrible for coverage. Verizon spent more than $45 billion on mid-band C-band spectrum, of which it’s deployed 60 MHz in each market in its first wave and is now increasing that to 140 MHz to 200 MHz per market.

But it’s still about a year behind T-Mobile in terms of number of people covered with the mid-band spectrum.

What’s makes Verizon arguably more vulnerable than AT&T here is Verizon made having the “best network” the foundation of its value proposition for a generation, Moffett said. Third-party reports like the ones cited in his report, word of mouth, general press, and “yes, actual user experience, are now working against them,” he added.

Exacerbating things for all the players are signs of slower industry subscriber growth and increased competition from the cable players. Verizon has lost market share in every quarter since the second quarter of 2020, the report said, noting that Verizon was the first to raise prices in the second quarter, then took a step back and introduced a lower price plan to mitigate potential customer churn.

The MoffettNathanson analysts downgraded Verizon to “underperform,” with a revised price target of $41 and lowered their price target for AT&T to $17, down from $19. By contrast, they raised their price target for T-Mobile to $174, up from $165.

Verizon shares were trading at $44.10 this morning, down 2.73% at one point, while AT&T and T-Mobile shares were slightly up, at $18.46 and $146.62, respectively.