Starting today, all new Verizon (NYSE:VZ) mobile customers will be added to the company’s new “Share Everything” plan, which management devised as a way to streamline its pricing strategy and drive sales growth.
While customers have mixed feelings about this new pricing plan, this is simply one part of a larger growth strategy. I have all the details today, so whether you’re a Verizon customer or a potential investor, you won’t want to miss this one.
Company Overview
If you live in the United States, chances are you have heard of the massive rivalry between Verizon and AT&T (NYSE:T). However, many don’t realize that Verizon started as an AT&T spinoff in 1984. Fast forward almost three decades later, and Verizon has emerged as a global force in the broadband and telecommunications industry.
The company has diversified into a number of telecommunications services, including land line telephone and internet services, as well as one of the most advanced wireless networks on the planet. With nearly 194,000 employees worldwide, Verizon brought in over $110 billion in sales for 2011.
Buyout Buzz
This week, Verizon Wireless and competitor T-Mobile USA agreed to swap spectrum licenses covering 218 U.S. markets. T-Mobile will give Verizon spectrum covering 22 million people in addition to an undisclosed cash payment in exchange for Verizon’s spectrum licenses that will cover 60 million people. In a nutshell this will give T-Mobile greater 4G coverage and Verizon will benefit in the short-term from the cash.
In addition to this deal Verizon hopes to purchase $3.9 billion in spectrum from cable companies. Earlier in June, Verizon unveiled a plan to purchase Hughes Telematics (PINK:HUTC), a specialist in location-based services for cars, for $612 million. The deal is expected to close in the third quarter, and the company will retain its existing management team and remain headquartered in Atlanta.
New Pricing Scheme
For some weeks now industry analysts and customers alike have been puzzling over Verizon’s new Share Everything plan, which some call the biggest change to pricing in the telecom industry in over two decades.
Basically all users on a family plan will share an alloted block of data for the month, starting at 1GB for $50. On top of that, each additional device is charged a monthly fee; smartphones are an extra $40, feature phones are $30 and tablets are $10. The benefit of this is that families will multiple devices will have an easier time tracking data usage compared with the old model-where each device has a separate data plan.
Verizon will text customers when they have exceeded their data limit for the month, and unlimited talk and text are also built into this plan. In the end this plan mostly benefits larger families with a variety of smart devices, but some single users will find themselves paying more for a limited data plan compared with their old unlimited plans.
One of the biggest complaints is that customers that are grandfathered into the company’s old unlimited data plan can’t upgrade to a new phone without paying the original retail cost for the device. The only way to get the subsidized phone is by switching over the the Family Share plan.
Regardless of the mixed reviews it will certainly be interesting to see whether Verizon’s new pricing scheme is a trailblazer for the rest of the industry or if the ire of customers will hit the company’s bottom line.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For all but one of the past 12 months, this stock has been a consistent “buy”. However, the company’s operating margin and cash flow were hit in the first quarter, so VZ’s fundamental grade is pretty lackluster. As it stands, Verizon is only strong in terms of return on equity and earnings growth and has mediocre sales growth and earnings revisions. The real thing that keeps VZ in “buy” territory is its strong level of buying pressure. This is a B-rated stock.
Bottom Line
As of this posting, June 28, I consider VZ a B-rated Buy. However I recommend that you proceed with caution with VZ because a drop in buying pressure could easily send this stock down to a hold.
Recommendation: B-rated Buy
Sound Off: What do you think about VZ? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.
