Editors' pick: Originally published March 7.
Last month, Verizon (VZ - Get Report) finally gave in to calls for it to once again offer an unlimited data plan for its subscribers, and the move is paying off in a measurable way, according to Pacific Crest Securities.
The decision was surprising considering that in January 2016, Verizon CFO Fran Shammo told CNET that Verizon is "not going to entertain" the idea of an unlimited data plan. Both Verizon and rival AT&T (T - Get Report) had previously ended their unlimited plans in 2010. TheStreet's Jim Cramer said that Verizon's change of heart was "completely defensive" as its competitors were all offering unlimited plans.
Verizon's announcement set off a domino effect in which AT&T, Sprint (S - Get Report) and T-Mobile USA (TMUS - Get Report) all began enhancing their plans. Sprint started a promotion for new customers offering an individual unlimited data plan for $50 per-month, AT&T started offering $90 unlimited plans that don't also require a video subscription and T-Mobile added 10 GB hotspot use and HD video to its previously announced $70 per month T-Mobile ONE unlimited plan that rolled out in August. It's worth noting that no plan is truly unlimited, with all four carriers warning that speeds may slow down if you exceed a certain amount of data usage in a month.
"Our survey picked up on increased activity for Verizon, which is likely the result of its unlimited data offering," Pacific Crest analyst Brandon Nispel wrote in a note to investors on Tuesday morning. However, these unlimited data plans seen at the top four carriers are not accretive to average revenue per user (ARPU), the firm noted.
These claims are in line with Verizon EVP John Stratton's comments that the company saw a "significant level of interest" in its new unlimited data plans and that the company viewed the plan as ARPU-neutral, according to his talk at Deutsche Bank's 2017 M&T Conference, the firm wrote on Tuesday. In addition the company said it believes it can maintain its superior network quality.
According to a recent study from OpenSignal, Verizon continues to hold the top spot for 4G availability, with testers being able to find a Verizon LTE signal 88.2% of the time. But T-Mobile is closing in on Verizon, coming in at just two percentage points behind Verizon in 4G availability for the fourth quarter. In terms of 4G availability, AT&T is somewhere in the middle with T-Mobile while Sprint brings up the rear.
As a result of Verizon's new plan, Pacific Crest increased its estimate for total retail postpaid net additions for Verizon to 605,000 from 540,000 for the 2017 first quarter and to 2.33 million from 2.06 million for 2017. Meanwhile, it lowered the corresponding estimates for both Sprint and T-Mobile because of the rising competition from Verizon. But the firm maintained AT&T's estimates because its unlimited plan has helped it gain back customers.
AT&T announced in January 2016 that, after six years, it was bringing back an unlimited data plan, but only to subscribers of its DirectTV or U-verse pay video services. The company said it was a limited-time offer but did not specify when it would end. By the end of 2016, about 8 million customers that had a video subscription had also signed up for its unlimited plan. Then, last month AT&T dropped the requirement that unlimited data plan subscribers also had to have a subscription to its cable or satellite video service.
"We believe the majority of the impact [of Verizon's unlimited plan] will be felt by T-Mobile and Sprint as AT&T quickly responded with its own unlimited offerings, and AT&T and Verizon generally swap a substantial number of subscribers each quarter," Pacific Crest wrote.
Even though Sprint and T-Mobile will be hurt the most by Verizon's newest plan, it probably won't make much of a difference in their near-term quarterly results, especially for T-Mobile because its subscribers tend to be more loyal, the firm claimed. Before Verizon announced its unlimited data plan last month, T-Mobile said that its porting ratio from Verizon (the number of customers joining T-Mobile from Verizon) was in the threes. Four days after the announcement of the Verizon plan, the ratio went negative. However, the ratio has now risen to between one and two.
While Sprint's porting ratio from Verizon probably took a similar dip, it also has less-loyal subscribers than T-Mobile, according to Pacific Crest's survey. Based on the survey, Sprint should see weakening subscriber activity over the next three months and 12 months, while T-Mobile should see strong subscriber activity in the next 3 months and 12 months. This presents near-term and longer-term headwinds for Sprint.
The firm remains overweight on T-Mobile and said that of the four main carriers, longer-term survey trends are "most positive" for T-Mobile and the least positive for Sprint.
Going forward, one of Verizon's top priorities for 2017 will be to continue to improve the network as technology improves, including running 5G trials, Deutsche Bank noted. Verizon announced at the end of February that it expects to test its 5G service in 11 U.S. markets by mid-2017.
These first trials will use fixed wireless technology to bring faster speeds to home Internet usage rather than to mobile communications. This is important for Verizon's future story, particularly as 5G was the hot topic at the Mobile World Congress last week, with Ericsson (ERIC - Get Report) predicting that 5G could be a $1.23 trillion opportunity by 2026.