Verizon: New Changes Could Hit Profits

| About: Verizon Communications (VZ)
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It's a common conception that communications technology is causing the world to shrink around us. As we are finding it easier to access information and communication with other people, we are able to exclusively inhabit our own bubbles, our own little worlds, and in doing so become more and more isolated. However, while I admit that this is true to an extent, I would argue that, in an equal and opposite force, communications technology is also allowing the world (and our knowledge of it) to grow.

We have access to a seemingly infinite amount of information at our fingertips, and can share this with others in a bid to educate them, allowing the formation of new, innovative ideas and creations. Regardless of whether you see the world as shrinking or expanding, you can nonetheless identify companies such as Verizon (VZ) as the driving force behind these changes.

However, despite Verizon's crucial role in the marketing, retailing and usage of the mobile devices and networks upon which we all depend, and in spite of the recent release of groundbreaking technologies such as Apple's (AAPL) iPad 3, Verizon's stock has seen a significant decrease in value since the end of 2011, when it peaked at $40.

In fact, if Verizon's stock continues to fluctuate dangerously in the way it is doing at the moment, we could see a return to the figures of early 2011, when stock was consistently below $37. And it's not only Verizon that's seeing this type of decrease: Telephone & Data Systems (TDS) has seen a similar trend since the start of 2012. However, the story's not the same across the board.

Leap Wireless (LEAP) has, despite some fluctuation, remained at almost exactly the same price since the start of the year, and companies such as AT&T (T) and Sprint-Nextel (S) have seen an increase on stock price since 2011. So why is there such a mixed bag when it comes to the fortunes of our communications providers? And why does Verizon seem to be struggling where others are prospering?

Of course, the first place to start is with public relations, and currently, Verizon isn't doing too well. It has recently been reported in the Wall Street Journal that, even though Verizon customers have owned their new iPad 3 for less than a month, they're in uproar after being hit with extra charges of $10 for every gigabyte of data they use over their monthly allowance.

In the article, iPad user Mr. Brandon Wells calls the Verizon charges on the Apple iPad a "catch-22" - even though the device is designed specifically to handle files which use a lot of data (think movie downloads and Netflix streaming), Verizon's minimal monthly data allowances of 5GB per month and excessive overages mean that customers are deterred from using the iPad to its capacity, or incur hefty charges if they do.

Well, $10 per gigabyte is a lot of money, especially when considering that you can use up your 5GB data allowance in under three hours. And, undoubtedly, this is going to leave a lot of customers with large dents in their bank balances, and even larger dents in their respect for, and loyalty to, Verizon. It's not only customers that have been affected by this - if Verizon is preventing Apple's devices from being used correctly, and upsetting the vast legions of loyal Apple customers, it may not be long before relations between Verizon and Apple are soured.

And, considering the overwhelming strength of Apple in terms of its customer base and its economic control, Verizon is at the risk of making a very powerful enemy. On the contrary, AT&T's data package for the iPad seems not to have caused the same uproar - which is interesting, as its overage is also a minimum of $10 per gigabyte.

AT&T also seems to be keeping abreast of the latest in smartphone releases, as well dealing better with tablets. The latest and most technologically advanced smartphone to grace the market is the Samsung Galaxy Note, and it's only available on AT&T. The company's website has whole pages dedicated to the phone, while the Note is nowhere to be seen on Verizon's website. And this seems to have angered the already irritated Verizon's customers further, with a number of online petitions cropping up all over the Internet where Verizon customers can voice their displeasure. Unfortunately, many technological commentators and online bloggers are claiming that these petitions are null and void, because of the huge $10 million commercial that AT&T had to help fund in order to secure exclusivity.

Of course, succumbing to what the customer wants and outbidding AT&T in order to secure the Note might be an obvious way to boost Verizon's customer satisfaction and popularity, which seems to be at a low right now. However, I would suggest that Verizon consider very carefully before doing this. As outlined above, the makings of a tussle between Verizon and Apple are well underway. Any attempts to outdo AT&T could put Verizon at risk of making another technological superpower enemy - after all, AT&T is the largest network provider of 4G connectivity in America.

Currently, Verizon's stock stands at around $38, and is heading slowly, but surely downwards. Conversely, AT&T's stock stands at around $31, and, if trends from earlier this year are to continue, will be increasing in value. All we can hope is that Verizon navigates its recent PR faux-pas with extreme caution before jumping in with two feet. What I'm suggesting is that Verizon's most obvious solution might not, ultimately, be its best in the long run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.