24/7 Wall St. interviewed Verizon (NYSE: VZ) CEO Ivan Seidenberg about the wireless and broadband industries.
When asked about the concern among investors that wireless saturation rates and new cellular price plans are a sign of a price war which might hurt profits for Verizon and its peers, Mr. Seidenberg said that there is a legitimate concern that cellular penetration is at 85%. He said that this means the market is not going to grow at 15% each year. The addressable market for cellular subscribers can’t keep moving up at anywhere near those rates.Verizon has been winning new customers by taking wireless share from competitors consistently and he expects that to continue even in a fairly highly pentrated market. Also, in terms of wireless data use, that is only 20% of the market now and 75% of customers have data-enabled phones The data market is not saturated at all. That is the future of revenue growth in wireless.
Seidenberg said in terms of the new cellular pricing program, Verizon’s average wireless customer pays $51 a month. The company has more people moving up from the $79.95 price level to the new $99.95 plan than it does people dropping from very high-priced plans. As customers come to Verizon for air cards and other wireless devices, they have let the firm know that they want better pricing for their cellular service. Verizon is getting growth from this new pricing program and expects to benefit from low data use penetration as more customers subscribe to these services. The revenue from these will be accretive which should be evident in future quarters.
The landline broadband business also has high penetration, so some of the same concerns apply here. Seidenberg made it clear that on the broadband landline side, DSL does have high penetration, but with the company’s FiOS service, Verizon is competing with cable and satellite. Investors are worried about a price war with cable, but that is unlikely to happen. The consumer is actually using more services and this is also helping the cable companies as people add flat-screen TVs, other consumer electronics devices, and high definition screens. This is pushing cable ARPs up as well.
The capital spending Verizon is doing on FiOS and that the cable companies are doing is to get business from an expanding pie. Cable went from 36 channels to 300 channels and that type of increase in services to customers is still growing. So, from the perspective of the industry the revenue-yield-per-household for broadband is moving up
When asked about friction between the cable companies and the FCC on net neutrality Seidenberg said that Verizon agrees with the FCC’s five principles of net neutrality, any access for anybody. The company believes that the marketplace will enforce these. Where Verizon doesn’t agree with the FCC is on its position of having government regulation. Seidenberg says net neutrality is a ruse. The market should allow Verizon and other broadband companies to provide competitive services at competitive prices. The broadband consumer market will provide limits and already does. Regardless of the outcome on issues at the FCC, Seidenberg said Verizon would adhere to the non-discrimination principles of net neutrality.
Douglas A. McIntyre.