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Aggressive Promotion To Take A Bite On Verizon Communications Inc. (VZ) Profit Margins

Price wars in the wireless sector look to be taking a toll on Verizon Communications Inc. (NYSE:VZ), which has warned that its profits continue to come under immense pressure. CNBC’s, Dominic Chu, reports that Verizon expects fourth-quarter promotion offers to put more pressure on its earnings.

Verizon Communications Inc. (NYSE:VZ)

Verizon Communications Inc. (NYSE:VZ) is grappling with customers leaving its network to join its rivals who have resorted to carrying out aggressive promotional activities in a bid of luring more customers. Verizon margins have over the years benefited from the company charging premium fees for its wireless services in large because of its strong network across the country.

“The company expects that fourth-quarter impacts of its promotional offers with stronger customer volume will put some short term pressure on wireless segment profits and profit margins,” said Mr. Chu.

Verizon has especially been grappling with stiff competition from Sprint Corporation (NYSE:S), which has stated that its willingness to offer half-price for wireless services for any customers switching from AT&T Inc. (NYSE:T) and Verizon. AT&T was the first one to carry out price cuts earlier in the year and is still offering helpings on data geared towards attracting more customers.

Verizon Communications Inc. (NYSE:VZ) has also remained cautious in cutting its prices in the hyper-competitive market but has been forced to rethink the same as rivals continue to initiate cuts that continue to draw more customers. The giant wireless company has also stated that it experienced an upsurge in demand for 4G smartphone and tablet in the fourth quarter.

“They also said that they saw very strong demand for 4G smartphones and tablets, but they also said that approximately 3 out of every four upgrades was strategic or high quality. Meaning they were from a basic phone or another 3G smartphone,” said Mr. Chu.

Verizon Communications Inc. (NYSE:VZ) has also affirmed that its promotion activities continue to draw new customers most of whom are buying devices without subsidies, opting to pay for them in installments.

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