By Trefis.com

Verizon Communications Inc. (NYSE: VZ) added only 423,000 subscribers in Q1 of 2010 compared to 1.1 million subscribers during the last quarter of 2009. We believe that Verizon will continue to gain share in the US mobile phone market, but will have to continue launching new smartphones in order to boost subscriber gains.

Despite our growth expectations, there could be a downside of more than 5% to the $33 Trefis price estimate for Verizon’s stock if Verizon’s market share were to remain flat instead.

Verizon Expected to Gain Share

Verizon, which competes with AT&T Inc. (NYSE: T) and Sprint Nextel Corporation (NYSE: S), has about 88 million retail postpaid subscribers, and we believe it will continue to gain retail postpaid market share in the US cellular market from about 31% in 2009 to around 36% by the end of Trefis forecast period.

New smartphones are key for share growth. A portfolio of new smartphones is critical for Verizon gaining new subscribers. Here’s why:

• HTC Incredible Could Give Verizon a Much Needed Fillip. Verizon added 1.1 million retail postpaid subscribers in Q4 of 2009, thanks in part to the success of the Motorola, Inc. (NYSE: MOT) Droid and other Android-based devices. Verizon didn’t launch any major device in Q1 of 2010, but recently rejected carrying the Google Inc. (NASDAQ: GOOG) Nexus One phone in favor of HTC’s Incredible. The initial reviews of the HTC Incredible smartphone are encouraging and it could provide a boost to Verizon subscribers in Q2 2010.
• iPhone Could Come on Verizon’s Network by 2011. There is increased media speculation that Apple Inc. (NASDAQ: AAPL) will sell the iPhone through Verizon’s network from 2011 after its exclusive contract with AT&T expires. If this were to happen, Verizon will be able to gain subscribers from AT&T, especially when Verizon completes its network upgrade to LTE. Verizon’s 4G LTE technology will provide data transfer speeds up to 8x faster than traditional 3G technology. Verizon plans to offer 4G services in 25 to 30 markets by the end of 2010.
• Device Upgrades Limit Subscriber Loss.  Verizon management indicated that the number of Verizon customers upgrading their phones increased by 15% compared to a year ago. This suggests that Verizon’s customer retention will continue to improve as the company offers a wider selection of phones to existing subscribers. The improvement in customer retention is evidenced by the 6% improvement in churn rates compared to the first quarter of 2009.

VZ Stock Faces 5% Downside if Verizon Doesn’t Gain Market Share

Although we forecast that Verizon’s market share will rise to 36%, there could be a downside of $2 (>5%) to the $33 Trefis price estimate for Verizon’s stock if the company doesn’t gain any mobile phone market share.

For additional analysis and forecasts, visit Trefis.com.

Led by MIT engineers and former Wall Street professionals, the Trefis team builds a model for each company’s stock price based on the relative importance of products that comprise a company’s stock price.

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