Verizon Talks Up M2M, Video Amid Slowing Growth

Wireless revenue growth has slowed at Verizon Communications, but its CFO says mobile video and M2M services will provide long-term upside once ongoing promotional battles lose steam.

Fran Shammo, Verizon‘s (NYSE:VZ) CFO, disclosed the wireless firm’s machine-to-machine (M2M) revenue for the first time on its Q3 earnings conference call Tuesday, aiming to deflect analysts’ concern over slowing service revenue growth. Verizon’s wireless service revenue rose 4.8% to $18.4 billion in Q3, down from 5.9% in Q2 and 7.5% in Q1 amid intensifying competition spurred by T-Mobile US (NYSE:TMUS) and, more recently, Sprint (NYSE:S).

Shammo says aggressive marketing and promotions will continue into Q4, a seasonally strong quarter this year boosted by the new Apple (NASDAQ:AAPL) iPhone 6. But the CFO says M2M and mobile video services are still in the early stages.

Charles Taylor of Flowood, Miss., was No. 1 in line at a Verizon store on Sept. 18 to upgrade to a new iPhone 6. View Enlarged Image

M2M technology, part of what is called the “Internet of Things,” connects cars, industrial products, medical devices and more to the Internet. Shammo said Verizon’s M2M and telematics revenue was $150 million in Q3. In the first nine months of 2014, M2M revenue totaled more than $400 million, up more than 40% from the year-earlier period, he said.

Shammo says mobile video will be a big driver for Verizon even though recent promotions provide consumers with much larger data caps for streaming TV shows, playing games or surfing the Internet. Sprint first offered “double data” promotions for family plans in August, followed by AT&T (NYSE:T)and then Verizon. The enlarged data buckets start at $110 to $130 per month.

Shammo says Verizon is seeing a lift from customers upgrading to 4G smartphones. Those customers usually buy plans with bigger data caps. Verizon’s superfast 4G LTE network, Shammo says, was built to carry video traffic.

And Verizon is developing more efficient technology, called LTE multicast broadcast technology, to whisk live content to smartphone users. Mobile phones featuring the multicast technology are expected to be widely available in 2015.

Despite ongoing promotional battles that are taking a toll on wireless margins and average monthly subscriber revenue across the industry, Shammo voiced optimism over Verizon’s long-term growth.

“(In Q3) we had one of the best quarters ever of customers stepping up to the next bucket,” Shammo told analysts on the call. “Video consumption is huge for us, it continues to increase quarter over quarter, year over year, and that’s driving a 50% increase in data usage on our 4G (customer) base.

“Video consumption, and if you look at machine-to-machine and Internet of Things — all of these are contributing to our growth.”