The largest U.S. mobile operator Verizon Communications Inc. (VZ - Analyst Report) unveiled new shared data plans for its wireless services, effective June 28. The use of the new shared plan will put an end to the company’s current monthly voice and data plans.
The new shared data plan – Share Everything – will provide unlimited voice minutes and text, including video and picture messaging. It will bundle data services across multiple devices and allow sharing data on as many as 10 devices including smartphones, feature phones, tablets, netbooks, USB modems and Mi-Fi devices.
Verizon Wireless, a joint venture of Verizon and Vodafone Group Plc (VOD - Analyst Report), will offer shared data plans to all the new and existing customers and charge $90 per month for one smartphone and one GB data. As a result, the Share Everything price is lower than the current plans when selected with unlimited calling and texting, but higher than plans with limited calling and texting. Notably, Verizon will now charge customers on a data basis rather than metered or tiered basis.
While Verizon’s new offer contains higher fee, we believe the unlimited facility and shared data component would aid in making the plans popular, thereby leading to higher demand. As the cell phone markets are saturated and customers are hungrier for data rather than voice, the new progress will boost the company’s monthly average revenue per user (ARPU) growth in the short term. However, this growth will slow down making ARPU eventually immaterial in the long term.
The shared data strategy is considered the biggest revamp in wireless pricing over the past several years. Being the first U.S. carrier to offer this service, Verizon will enjoy a competitive edge over its major rivals. AT&T Inc. (T - Analyst Report) is considering promotion of this offer soon while Sprint Nextel Corp. (S - Analyst Report) is still sticking to its unlimited data plans and does not have any intention to launch shared data pricing plans in the short term.
The new wireless pricing plan will put the wireless business of T-Mobile USA, a unit of Deutsche Telekom AG (DTEGY) as well as prepaid wireless carriers such as MetroPCS Communications Inc. and Leap Wireless International Inc. more at risk as they offer unlimited pricing plans.
We are maintaining our long-term Neutral recommendation on Verizon. Currently, the stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).