Verizon sees benefits of broad smartphone base

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Verizon sees benefits of broad smartphone base

In quarter without new iPhone, AT&T still won on net adds, but most were non-phones as rival gained from Android

By CAROLINE GABRIEL

Published: 24 October, 2011

READ MORE: Financial | US | iPhone | Android

AT&T and Verizon both suffered somewhat disappointing levels of subscriber additions thanks to a quarter without a new iPhone, though the former came through more strongly with stronger net adds than its rival. Verizon, despite its huge investment in LTE, is still seeing most of its growth being driven by 3G and by Android, though it expects a sharp uptick in iPhone activations in the current quarter because of pent-up demand for the new 4S model. However, the two largest cellcos now have to compete with Sprint and C Spire too, and are likely to put increasing emphasis on their 4G products and services to ensure differentiation in 2012.

Verizon Wireless said it added 2m iPhones during the quarter, down from 2.2m and 2.3m respectively, in the first two periods when it offered the handset. CFO Fran Shammo expects that trend to reverse in Q4 with the launch of the 4S, which he said sold out on its first day of availability from Verizon. He said that, throughout the year, about 80% of its iPhone activations have come from upgrades within its own base, and he thinks that will continue in the holiday quarter.

On the LTE network, Verizon sold 1.4m devices, up from 1.2m in the second quarter and 500,000 in the first. About half of the 1.4m gadgets were phones, meaning that about 12% of the carrier's total smartphone sales were 4G-enabled. Overall smartphone penetration in the carrier's base was 39%, up from 24% a year earlier and in the quarter, 60% of postpaid device activations were smartphones (a total of 5.6m).

Verizon is keen not to make LTE entirely handset driven, as other device types may have higher ARPU and/or lower data usage, and they will attract new classes of subscriber. Shammo said data-only products like dongles have ARPU of $49 a month and it was a big priority to expand this category. Data-only gadgets also drive users towards LTE far more effectively than handsets, helping Verizon achieve its goal of moving heavy users to the more efficient, higher capacity network. The operator said that 95% of its data-only product sales supported LTE.

Verizon added 1.3m total connections in the quarter, including 882,000 retail postpaid customers, 86,00 retail prepaid and 367,000 wholesale and other connections. At the end of the quarter, the company had 107.7m total connections, an increase of 6.5% year-on-year, consisting of 90.7m retail and 17m wholesale and other connections. Postpaid ARPU was up 2.4% to $54.89, while postpaid data ARPU increased by almost 16% to $22.22.

Total wireless service revenues were $15bn, up 6.1% on the year-ago quarter, while data revenues leapt by 20.5% to $6.1bn.

While postpaid net adds came in below forecasts, the compensation for a 'slow iPhone quarter' is usually better margins. "Wireless results were clearly held back by anticipation of the new iPhone launch, and growth should accelerate nicely in 4Q," Credit Suisse analyst Jonathan Chaplin wrote in a research note. "However, the iPhone will likely exact a heavy toll on margins making it unlikely that the company beats on EPS or that expectations for 2012 EPS increase from here."

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