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Verizon's Lucrative 3G Plan

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According to sources, Verizon Communications Inc. (VZ - Free Report) is on the path of re-building its position in the pre-paid 3G domain, which is gradually getting obsolete from the market.

The entry of 4G long-term evolution (LTE) in the market and its increasing popularity among carriers and subscribers have affected 3G’s market share. Thus, to boost the 3G market, Verizon has put forward a lucrative double-data promotional offer to prepaid customers for the upcoming holiday season.

According to the offer, Verizon – which has nearly 5.5 million prepaid subscriptions – is providing the subscribers with 2GB of data for prepaid $80 unlimited-talk-and-text plan, in place of the customary 1GB data. This offer – which will end on January 31 – is exclusively for customers using 3G and not for 4G LTE customers.

Through this step, Verizon aims to expand the 3G prepaid market, while placing 4G postpaid plans for smartphones on the shelf. With this offer, the company expects to attract the youth and low-end customers.

New York-based Verizon targets to use 3G connectivity as a back-up option for those regions that cannot be served with 4G. With the growing market penetration of 4G, the company expects 3G network to be wiped out within the next few years. Until then, management aims to reap in most benefits by adding on more people in the 3G prepaid network.

Verizon, with a vast 3G network set-up, has the option to gain market share in the prepaid division by endorsing unlimited voice plans at higher than average prepaid ARPUs (average revenue per user) minus any additional capital spending. For this, the company might be required to trim its prepaid prices that are a bit expensive compared to peers.

Currently, Verizon connects more than 250 million Americans via its LTE network in almost 420 markets across the nation. Among other top telecom service providers, AT&T (T - Free Report) serves LTE network to 150 million people, and Sprint Nextel Corp. (S - Free Report) has just started rolling out the service and covers only 43 U.S. markets.

We are maintaining our long-term Neutral recommendation on Verizon. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank.

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