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Verizon (VZ) Opts for Dealer's Network for Prepaid Service

Zacks Equity Research

Per recent news report by FierceWireless, U.S. telecom behemoth Verizon Communications Inc.  VZ  has started using the service of some exclusive dealer’s network to sell its prepaid wireless offerings. So far five stores have been launched, two in Las Vegas and Phoenix areas, and one in Socorro, TX. Notably, all five of these stores are run by a dealer known as My Peak Wireless.

The telecom biggies so far have largely ignored the domestic prepaid mobile service businesses. The national wireless carriers were mostly interested in the lucrative postpaid wireless market, while the prepaid market remained a secondary option. However, with the competition intensifying in the U.S. wireless prepaid market. In the last few years, the gap between prepaid and postpaid ARPU (average revenue per user) has narrowed significantly, forcing the wireless carriers to concentrate on the prepaid segment.

Verizon is attempting to boost prepaid market share through dealer’s network and has decided to launch several data plans in the price range of $50 - $70. In the third quarter of 2016, the company added a net 83,000 prepaid wireless subscribers compared with a loss of 80,000 in the year –ago quarter. At the end of the reported quarter, Verizon had 5.456,000 prepaid customers.

In Oct 2016, TracFone acquired Walmart Family Mobile business from T-Mobile US Inc. TMUS. TracFone is the prepaid subsidiary of the Mexican telecom giant America Movil SAB AMX. The largest U.S. retailer Wat-Mart Stores Inc. WMT launched its Walmart Family Mobile in 2010 as an MVNO (mobile virtual network operator) of T-Mobile US.

The reason for T-Mobile US to sell Walmart Family Mobile business is to establish its own MetroPCS prepaid mobile brand. Management opened nearly 1,000 outlets for MetroPCS prepaid service in 2016. Meanwhile, U.S. telecom giant AT&T Inc. T has also opened around 900 outlets for its Cricket prepaid wireless brand which it acquired through the takeover of Leap Wireless. Furthermore, Sprint Corp. S has also decided to strengthen its Boost Mobile prepaid wireless brand.

Price performance of Verizon

In the last one year, the stock price of Verizon has witnessed a growth of 18.28%, underperforming the Zacks categorized U.S National Wireless industry’s growth rate of 25.73% in the same time period. Nevertheless, Verizon has a very powerful diversified business model. In the wireless front, it will start initial deployment of the upcoming 5G network in 2017 while on the wireline front, the company is aggressively expanding its fiber-based footprint. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe these are primary reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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