How long can Verizon stay above the wireless pricing fray?

Verizon is hinting that it may respond to the competitive offers in the industry, an indication that it isn't immune to the looming wireless price war.

Verizon's more ambitious destination store in Minneapolis. Verizon

Even Verizon is starting to feel the heat.

Verizon Chief Financial Officer Fran Shammo acknowledged on Tuesday during a conference call with investors that the company is "seeing a certain segment of our base is responding to competitive offers," adding that the company would "respond accordingly."

The comments underscore the increasing industry pressure hitting all of the carriers, largely driven by an aggressive T-Mobile. Verizon Wireless -- which touts industry-leading customer loyalty, a powerful brand, and marketing prowess -- was seen as the carrier best suited to deal with the competitive environment, but even it doesn't appear to be immune.

Verizon reported its fourth-quarter results on Tuesday, boasting a return to profit and 1.7 million net new connections . The results convey the image of a strong carrier continuing to dominate the industry.

Yet analysts are beginning to question how long Verizon will be able to remain dominant. Its stock is down 1.7 percent to $47.53.

"Longer term, we are still concerned about the headwind that rising competitive intensity will create," said Jonathan Chaplin, an analyst at New Street Research.

Sarah Tew/CNET

A deeper look at the company's numbers tell a different story. While the company added 1.4 million net new 4G smartphone customers, it said it added a total of 824,000 total phone customers, suggesting it lost 576,000 basic phone and 3G smartphone customers. AT&T saw a similar phenomenon in the third quarter .

The culprit: T-Mobile and its aggressive promotions, which have included lower-priced plans, the elimination of contracts, the option to upgrade to a device early, and free international roaming data. The carrier likely added the most customers out of all of the carriers, having said in advance that it added 1.6 million subscribers in the fourth quarter. The carrier dropped another hammer at the Consumer Electronics Show, announcing that it would pay off the early termination fees for customers looking to switch .

Shammo declined to talk about T-Mobile's ETF plan, only saying, "We will compete and respond where we need to."

Verizon's already making some moves. The company yesterday unveiled a lower-priced option for its Share Everything plan, offering customers unlimited calls, text messages, and 250MB of data for $60 . With a data tier so low, the plan is largely designed for basic phone customers making the switch.

T-Mobile CEO John Legere
T-Mobile CEO John Legere at CES 2014 James Martin/CNET

Verizon's Edge program, which allows customers to pay for a phone on a month-to-month basis and upgrade after six months, is another component of its plan to fend off T-Mobile's pressure. On Sunday, it said customers could upgrade their phone in as soon as 30 days , but would have to pay off half the price of the phone.

While Edge is an important competitive weapon, Shammo acknowledged that it isn't a significant portion of its portfolio of services. He downplayed the notion of a price war in the industry, noting that the changes have largely meant a shift in pricing from services to equipment.

Unlike T-Mobile and AT&T, Verizon doesn't offer a price break on the service plan if a customer opts to pay for the device itself, which critics have noted that it means customers are effectively paying double for the phone. It's not a surprise that many, including CNET senior writer Marguerite Reardon, have called it a bad deal .

Verizon will have to act if it wants to protect its customer base. At stake is the base of Verizon customers that the carrier hasn't upgraded to a 4G smartphone yet. Shammo said there are still 25.5 million basic phone customers and 24.7 million 3G smartphones on Verizon.

It "gives us plenty of opportunity in 2014," he said.

That's also an opportunity for competitors looking to pick off customers.

"They are vulnerable precisely because they've been so successful," said Craig Moffett, an analyst at MoffettNathanson Research.

Beyond T-Mobile, Verizon has seen an assault on what had been a core selling point of the service: the reliability of its network. AT&T has recently begun touting itself as the nation's most reliable network, an honor Verizon has long claimed for itself. Indeed, Verizon late last year admitted to network issues in its bigger cities, but said it was working to fix them.

Verizon will be doubly focused on wireless once it completes the buyout of Vodafone's stake in Verizon Wireless. Shammo said he expects the deal to close on Feb. 21. The deal should provide a boost to the company's earnings and cash flow, as well as allow it to better integrate wireless services with its wireline and FiOS business.

Whether any of that will help Verizon as the competitive pressures mount remains to be seen.

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About the author

Roger Cheng is the executive editor in charge of breaking news for CNET News. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade. He's a devoted Trojan alum and Los Angeles Lakers fan.

 

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