Verizon's (NYSE:VZ) stock price movement has been interesting over the last few months -- the stock was on an upward trend and crossed $51, but it could not sustain the price and fell back down to $48 -- however, the price has started to move up again and the stock is currently trading close to $50.
The company has a an edge over other players in the sector due to its service quality, which has enabled it to earn top honors in its reliability and speed index, data and call performance services in its major markets. Verizon is introducing its very first commercial application of Voice-Over-LTE network in the U.S. over the next few weeks -- we believe VoLTE segment will be a solid growth opportunity, which should allow Verizon to grow further.
VoLTE Might be the Way to go Forward
Recently, Verizon announced the launch of its High-Definition VoLTE services. The company has taken its time to deploy a nationwide VoLTE network over the last few years and is now ready to launch the services to its markets. Verizon has previously delayed its VoLTE launch due to lack of coverage infrastructure to make the technology work in the desired regions. Further, Verizon's common CDMA network does not support Single Radio Voice Call Continuity [SRVCC], which could hinder VoLTE connectivity outside the LTE coverage areas.
Going a bit deeper into the technical specifications, the launch of the VoLTE network will enable Verizon to take a step forward towards the latest telecommunication era by shedding its CDMA2000 network. Over the last few years, the company has developed its LTE network in the U.S. with a superior spectrum configuration of Upper 700 MHz C Block [LTE Brand 13]. Moreover, the availability of VoLTE will substantially benefit the company by increasing its customer base as the company's new spectrum will open access to the network for any compatible device. Any device with LTE connectivity that supports VoLTE must be allowed to operate on the network and be able to use VoLTE.
Prospects of VoLTE Segment
The wireless segment is near to saturation at the moment and it is important for the telecom companies to find a new growth outlet -- the VoLTE segment is expected to be this growth driver over the next five years. According to Infonetics Research, VoLTE subscribers are expected to grow at 145% compound annual growth over the next 3-4 years, and the segment is expected to become a $17 billion business by 2017. Verizon will have an edge in this segment as the company has worked on an extensive network and it will have a first-mover advantage.
The Voice-over-LTE [VoLTE] networks are slowly penetrating the telecom industry by replacing the conventional circuit switched-based voice offerings. The growth is mainly due to the performance benefits of the new technology, which clearly beat the conventional systems in the initial commercial tests. According to research by Signals Research Group, the commercially deployed VoLTE networks have proven to provide better call quality to the customers, including other important features such as less battery drainage and faster connectivity than the legacy systems. Moreover, the research also states that the wireless carriers could anticipate 40% more spectral efficiency on VoLTE networks as compared to circuit switched-based voice systems.
Competitors are Also Looking to Enter the Segment
T-Mobile (NASDAQ:TMUS) is also on its way to launching LTE Voice codecs using AMR-WB, which supports High-Definition Voice. However, Verizon is also introducing the first set of Rich Communications Services [RCS] with its VoLTE in order to support the video calling, which is collectively called as "Advanced Calling 1.0." However, the new service also has some limitations, which includes that the video chat features and the High-Definition voice will only function between two Verizon customers having a VoLTE-capable mobile device. This could result in increased sales of devices with VoLTE capabilities -- the Apple (NASDAQ:AAPL) iPhone 6 is rumored to have a built-in VoLTE feature, which also bodes well for Verizon.
Enterprise Business Segment: Changing Battlefields
Since the competition is getting fierce in the retail segment of the telecom industry, the bigger players of the industry, Verizon and AT&T (NYSE:T), have started focusing on the enterprise business segment. The enterprise segment of the telecom industry holds higher margins as compared to the retail segment and offers a large revenue share on offered services. Moreover, new enterprise opportunities are emerging for mobile network carriers driven and challenged by the growing needs of globalization and operational and capital spending efficiencies.
Recently, Verizon and BlackBerry (NASDAQ:BBRY) teamed up to attract enterprise users by offering a value add-on to its services. Verizon is offering $150 in bill credits for its enterprise customers who upgrade their BlackBerry devices through the carrier. Further, this value add-on offer is part of a two-year contract and requires a plan costing $34.99 or higher per month. The credit can also be used to purchase Blackberry technical support services including BlackBerry Messenger Protected and other enterprise services. This strategic move will enable Verizon to ensure consistent high-margin revenue stream from the enterprise segment for a period of two years. Moreover, Verizon reported weak global enterprise segment revenues during the second quarter, which could be increased by the recurring monthly payments for the remainder of the two-year contract period. On the other hand, BlackBerry also needs ways to increase its revenues -- this partnership can be beneficial for both companies.
Verizon Still Leads the Wireless Segment
As we mentioned above, the wireless segment is close to saturation and competitors are catching up in this segment -- however, Verizon still maintains a slight edge. At the moment, Verizon and AT&T have 34% market share each -- AT&T was able to match Verizon's market share with the help of the recent LEAP acquisition -- this acquisition added over 4.5 million subscribers to the wireless segment of the company.
Verizon is still ahead of its peers in the business subscribers with 103 million subscribers; AT&T is in second place with 85 million subscribers. However, in the retail subscribers segment, Verizon and AT&T are locked at 34% market share, as noted above.
Verizon currently leads the wireless segment of the market, which is the most lucrative segment of the telecom sector at the moment. VoLTE is expected to be the next major segment of the sector and it is good to see Verizon is focusing on capturing this segment. Also, the focus on enterprise services will also result in considerable growth for the company as the enterprise segment has high margins. We believe Verizon will continue to grow and the stock price will experience an upward trend as the company captures these rapidly growing segments.
Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.
You can subscribe for real-time alerts by clicking on the button at the bottom of this article.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.