Verizon Profits Rise On Record Smartphone Sales

By Joseph Palenchar -- TWICE, 1/25/2011

New York - Verizon Wireless posted a 5.7 percent gain in fourth-quarter revenues to $16.1 billion and a full-year revenue gain of 5.1 percent to $63.4 billion, the company announced.

Operating income rose 18.9 percent during the quarter to $4.85 billion, and operating income margin rose to a record 30.1 percent, up from a year-ago 26.7 percent. Full-year operating income rose 12.5 percent to $18.7 billion with full-year margin rising 190 basis points to 29.5 percent.

Revenues and margin grew in the quarter because of continued expansion in the subscriber base, rising revenues per user, a reduction in churn, and rising data revenues, which have been driven by the launch of 4G, record smartphone additions, and rising sales of Internet-accessing products such as wireless modems and tablets, the company said.

In the quarter, more than 75 percent of the carrier's 872,000 postpaid net new subscriber additions bought smartphones, helping bring the number of retail postpaid subscribers with smartphones to 26 percent of all retail postpaid users, up from a year-ago 15 percent.

During an investor's conference here, Verizon Communications president/COO Lowell McAdam projected that the 26 percent figure will grow to 50 percent of all retail postpaid subscribers at the end of 2011.

Retail postpaid subscribers account for 88 percent of Verizon's total year-end 94.1 million subscribers, which include retail prepaid subscribers and wholesale customers.

For the full year, the carrier added 9.3 million smartphone users.

On top of expanding its smartphone penetration, Verizon also expanded the number of Internet devices used by its postpaid subscriber base by 323,000 devices in the fourth quarter to 5.8 million. The devices include USB modems, MiFi mobile hot spot devices, and 3G-equipped Samsung Galaxy Tab tablets and notebooks. The numbers also include Wi-Fi-only Apple iPads and iPads sold with bundled MiFi.

The 4G launch also boosted data revenues, with 41 percent of 4G subscribers who signed up in the first three weeks of availability in December being new to the Verizon network, said executive VP/CFO Fran Shammo.

In other data-related announcements, the company said it would not provide an exact forecast of 2011 iPhone sales because of "too many variables," including supply, Shammo said, but if Verizon sells an analysts' consensus volume of 11 million units, the carrier's earning per share would rise 5 percent to 8 percent, he said.

For his part, Verizon Communications chairman/CEO Ivan Seidenberg said the company's iPhone sales "will probably do better than most people think."

Given the growth of smartphone usage and other data devices, the carrier's fourth-quarter data-service revenues rose 25.5 percent to $5.3 billion to account for 37.1 percent of all service revenues, up from the year-ago 31.8 percent. Service revenues include voice and data service but exclude sales of handsets and other devices.

For the year, data accounted for $19.6 billion in revenues, up by $4 billion from 2009.

Other types of data-using devices that deliver data revenue, such as telematics equipment and machine-to-machine communication, also grew in number, with the number of those connections rising 186,000 to 8.1 million following a 251,000 gain in the third quarter. These numbers are in addition to Verizon's 94.1 million subscribers and bring the carrier's total wireless connections to 102.2 million.

The carrier's other performance metrics include:

• total net subscribers additions, combining retail and wholesale subscribers, of 995,000, down from a year-ago 2.16 million, with full-year net adds hitting 4.84 million, down 14.4 percent from 2009's 5.66 million;

•  retail net adds (postpaid and prepaid combined) of 803,000, bringing the year-end retail subscriber base to 87.5 million, up 2.4 percent from year-end 2009;

• retail postpaid net adds of 872,000;

• a loss of 69,000 retail prepaid subscribers;

• a gain in wholesale net adds of 152,000;

• a total churn rate that fell to 1.34 percent in the quarter from the year ago's 1.39 percent and a full-year decline to 1.33 percent from 1.41 percent;

• an increase in the fourth quarter's average revenue per retail subscriber to $51.84 in the quarter, up 2.11 percent from a year-ago; and

• an increase in average data revenue per retail subscriber to $19.97, up 19.3 percent from the year-ago quarter.