On Thursday morning, Verizon (VZ) will report its third-quarter numbers. All eyes will be on the mobile subscriber addition figure. Verizon previously added 888,000 new postpaid mobile subscribers in the second quarter, which is not a hot number considering the recent string of 1 million-plus quarters, but passable considering Verizon’s strong margin performance. In the autumn quarter, things will get very interesting indeed β Wall Street expects Verizon to add another 900,000 contract subscribers. That is a high bar to clear in a slowing U.S. mobile market, even though Verizon received an end-of-quarter boost from the debut of Apple’s (AAPL) iPhone 5.
The wild card here is that at the end of June, Verizon debuted the new Share Everything Plans that effectively forced all new smartphone customers to buy unlimited voice and unlimited SMS packages. The new plans were a good deal for families with several subscribers and a certain mobile data consumption profile, but they meant a substantial price hike for individual subscribers who are after the cheapest possible smartphone package. The price of Verizon’s cheapest smartphone deal for new subs effectively jumped from $70 to $90 in late June β just ahead of the start of the autumn quarter.
Did Verizon calculate right? Are the superior coverage and family plan lock-in effect enough to offset the popular backlash against the money grab that the Share Everything Plans effectively meant? The third-quarter contract subscriber add number will tell us much about the psychology of American consumers. Many vented their anger against the new Verizon plans via Twitter and Facebook. But the company is betting that vast majority of people will follow along meekly, unwilling to gamble on smaller operators with questionable mobile coverage and weaker device ranges.
Verizon’s share price has dropped by 10% from early October, as the prospect of T-Mobile/MetroPCS (PCS) and Softbank/Sprint (S) mergers has raised the specter of true mobile price competition in America. Softbank did go all ninja against KDDI and NTT-DoCoMo back in 2007, accepting a $14 tumble in its mobile ARPU in exchange for substantial market share gains.
Before the possible new T-Mobile and Sprint price offensives begin, the third-quarter 2012 subscriber addition number will tell us how good Verizon is at implementing price hikes in the U.S. market. Wall Street consensus expectation for Q3 sub growth is notably high, particularly since the iPhone 5 debuted less than two weeks before the quarter closed. The big iPhone 5 shipments at the end of the quarter were likely offset to some degree by fading iPhone 4S sales during July and August.
Analysts are expecting Verizon to deliver a quarterly profit of $0.65 per share on sales of $29 billion. But the subscriber number could well be the most important figure in Verizon’s report. The tricky thing here is that the lower the number of new subs is, the more profitable Verizon is in the short term; when Verizon loses market share, it also avoids paying hefty subsidies to the new high-end smartphone buyers. The most likely outcome on Thursday is thus a combination of missing on some metrics and beating on others β the investor reaction will be a fascinating gauge of what metric matters most right now.