Verizon Wireless Expects Data To Speed Revenue Growth

By Joseph Palenchar -- TWICE, 1/26/2010

New York - Verizon Wireless posted a 0.2 percent sequential gain in service revenues to $13.6 billion in its fiscal fourth quarter, marking the lowest sequential fourth-quarter gain in years because rising data revenues failed to offset larger declines in voice revenues, the company's latest financial statement shows.

The number of net new subscribers, however, resumed year-over-year growth in the fourth quarter on a pro forma basis, when the carrier gained 2.2 million net subscribers, up from the year-ago 1.57 million. The pro forma numbers include numbers from Alltel Wireless, which was acquired by Verizon in January 2009. In the previous three quarters, the number of net new subscribers was down

For the full year on a pro forma basis, data revenues were up 31 percent to $16 billion, voice revenues were flat at $37.48 billion, but total service revenues were up 7.6 percent on a pro forma basis to $53.5 billion. The pro forma numbers include revenues from Alltel Wireless.

Company executives, however, expect total revenue-service growth to pick up in the coming year despite the slow economy because of a stronger 3G smartphone lineup and a new requirement that 3G multimedia phones come with minimum $9.99/month data contract. Like before, smartphones require a minimum $29.99/month contract.

 "In 2010, we can accelerate data growth," said EVP/CFO John Killian in an investor's conference call. The company has "fixed the smartphone lineup," in part with the fourth-quarter launches of the Android-based Droid and Droid Eris smartphones and the BlackBerry Storm II,  followed by this month's launch of Palm's latest WebOS-based smartphones. The Droids and Storm II "all posted strong sales," he noted.

At the end of 2009, 15 percent of the carrier's direct postpaid subscribers used a 3G smartphone, and another 11 percent used a 3G multimedia phone, and that number is going higher, the company said. Direct postpaid subscribers accounted for 90.1 percent of the carrier's total 91.25 million subscriber base at the end of the year. The other 9.9 percent consisted of direct prepaid subscribers and indirect subscribers, who are signed up by Verizon resellers.

Sell-through of smartphones was so strong in the fourth quarter that the carrier's operating income margin slipped to 27.3 percent from the previous quarter's 28.3 percent and the year-ago 29 percent. Smartphones are more heavily subsidized by carriers than other phone types to stimulate data-revenue growth.

Because of faster uptake in smartphones and 3G multimedia purchases, fourth-quarter data revenues grew to account for 31.9 percent of total service revenues (voice and data combined), up from 26.5 percent in the fourth quarter of 2008 on a pro forma basis.

In the fourth quarter, data revenue grew sequentially by 4.8 percent to $4.33 billion, but the gain didn't offset a 2.7 percent sequential decline in voice revenues to $9.22 billion, resulting in total service revenue growth of only 0.2 percent to $13.55 billion.

Though full-year voice revenues were flat, they actually declined 7.3 percent in the third quarter and 7.4 percent in the fourth quarter compared with the year-ago periods, and Killian cited multiple reasons for the declines. They include consumers' greater reliance on texting to communicate, second-half growth in the number of subscribers using discounted family plans, and fewer overage charges because of subscribers' larger bucket of included minutes. Killian said he expects new lower-priced unlimited-use plans will entice subscribers to step up from their current plans, helping bolster voice revenues.

The year-end subscriber base was up 7 percent to 91.25 million compared with the year-ago period.