Verizon Communications (VZ) recently unveiled its first unlimited prepaid plan for $50.00 a month. The plan would include unlimited voice, text and internet services.
Prepaid wireless services remain an emerging business for U.S. telecom carriers, accounting for approximately 20% of the nation’s total wireless subscribers. Over the years, this segment has registered significant growth owing to the economic downturn that has made users wary of long-term contracts and additional cost burdens. As a result, users are always looking forward to prepaid plans that allow maximum cost optimization against post-paid plans.
The launch marks Verizon’s foray into unlimited no contract plans which have been largely dominated by rivals like TracFone Wireless, Sprint Nextel (S), MetroPCS Communications (PCS) and Leap Wireless (LEAP). These companies have gained substantial market share given the growing number of prepaid subscribers. TracFone Wireless enjoys the maximum share with approximately 18 million subscribers.
Further, the entry of giants like Verizon is expected to intensify competition in the wireless market and consequently benefit customers through cheap prepaid plans. To tap these potential opportunities, carriers like MetroPCS have already adopted a lower pricing policy with plans available at only $40 per month.
However, rapidly growing demand for wireless data services with the expansion of 3G services, introduction of 4G LTE and the smartphone euphoria remain favorable for long-term data plans.
Given these advantages, we believe the large carriers like Verizon will continue to enjoy a fair share in the wireless services despite being positioned at a nascent stage in the prepaid market.
To tap the potential opportunities in wireless data market and to combat the lower prepaid pricing, Verizon introduced three tiered-data plans which are expected to boost average revenue per user (ARPU). Verizon would charge $30, $50 and $80 for 2 GB, 5 GB and 10 GB of data, respectively. Tethering for additional 2 GB of data will cost an extra $20 per month. The new plan is available for both 3G and 4G users. In our opinion, the pricing strategy bodes well for the company given the surging demand for data services.
We currently maintain a long-term Neutral recommendation on Verizon supported by a Zacks #3 Rank (Hold).
LEAP WIRELESS (LEAP): Free Stock Analysis Report
METROPCS COMMUN (PCS): Free Stock Analysis Report
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VERIZON COMM (VZ): Free Stock Analysis Report
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