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January 22, 2015 1:49 pm

Verizon warns on Google mobile plans

David Crow in New York

©Bloomberg

Google’s plan to sell mobile phone packages directly to consumers runs the risk of leaving millions with a substandard service, the largest US telecoms group has warned.

On Thursday, reports suggested that the online search giant was in talks with the two smallest US wireless carriers, Sprint and T-Mobile, about selling Google-branded mobile services that would piggyback on their existing networks.

But Fran Shammo, chief financial officer at Verizon, said the increase in traffic could put a strain on Sprint and T-Mobile’s infrastructure, resulting in a lower quality of service for both existing customers and Google’s new signings.

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“Google wants quality of service and there could be an issue if a bigger volume of traffic is placed on their networks,” Mr Shammo said in an interview with the Financial Times.

He refused to be drawn on whether Verizon had held its own talks with Google about selling network capacity — a move that would allow the search group to become a so-called Mobile Virtual Network Operator, or MVNO.

“They are a very large partner. We have bazillions of conversations with them. Google needs to do what they need to do,” Mr Shammo said.

His comments came as Verizon said profitability at its mobile phone division had fallen to its lowest level in two years during the fourth quarter, as an industry price war took its toll.

At the end of 2014, the US wireless market became increasingly competitive, after Sprint and T-Mobile US offered eye-catching holiday deals in a bid to steal customers from the “big two”: Verizon and AT&T.

Verizon still managed to win new users, adding 2m long-term customers — the most lucrative for operators — in the quarter, although 1.4m of these were lower-margin tablet customers.

“They are a very large partner. We have bazillions of conversations with them.”

- Fran Shammo, chief financial officer at Verizon, on Google

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In total, the company activated a record 15.3m new devices in the fourth quarter, including 13m phones, as customers rushed to upgrade to new handsets, such as the iPhone 6 and the latest Samsung Galaxy. But this hurt profitability, as Verizon typically subsidises the upfront cost of a new phone.

Profits at its wireless division fell almost 8 per cent year on year to $7.7m, as operating margins fell 50 basis points to 42 per cent — their lowest level since the fourth quarter of 2012.

Average revenue per user — a key industry metric — fell to $159 compared with $161 in the previous quarter.

Verizon’s churn rate — the proportion of customers defecting from the network — also ticked up to 1.14 per cent, which is its highest for more than a year.

Mr Shammo said the company had elected to lose lower quality customers to its competitors instead of matching price cuts being offered by rivals.

Shares in Verizon, which have fallen 4.8 per cent in six months, closed 0.93 per cent lower at $47.80 in New York.

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