Verizon Sees Smartphone, 4G Gains; iPhone 4S On Allocation

By Joseph Palenchar -- TWICE, 10/21/2011

Bedminster, N.J. - Verizon Wireless continued to boost the number of subscribers using smartphones and 4G devices in its fiscal third quarter, when it posted continued strong revenue gains and accelerated its operating income growth.

The number of net new connections also grew, though at a much slower pace than in the previous two quarters.

During a conference call with investors, Verizon also said that it ran out of iPhone 4S models on the first day of availability and is on allocation from Apple.

In disclosing its smartphone gains, the company said the number of postpaid subscribers using a smartphone rose to 39.2 percent in the third quarter from the second quarter's 35.9 percent and the first quarter's 32.2 percent. Smartphone penetration in 2010's third quarter was only 24 percent.

As a percent of postpaid-service phones sold in the third quarter, smartphones accounted for 59.6 percent, up from the year-ago quarter's 42.8 percent but holding relatively steady with the first and second quarters of this year. In the first and second quarters, smartphones accounted for 60 percent and 59.5 percent, respectively, of postpaid phones activated.

All told, the carrier activated 5.6 million smartphones in the third quarter, more than half of which were Android-based phones, and 35 percent were iPhones, said Fran Shammo, executive VP and chief financial officer of parent company Verizon Communications.

Total iPhone smartphone sales, however, slipped sequentially to 2 million units, from 2.3 in the second quarter and 2.2 million in the first quarter, largely because consumers were waiting for the next-generation iPhone launched last Friday, the company said.

In 4G LTE devices, including smartphones and other devices, the carrier activated 1.4 million units, with slightly more than half of those being smartphones, Shammo said. Among the company's retail net additions, which exclude reseller activations and machine-to-machine (M2M) connections, 52 percent activated a 4G device, Shammo said.

A total of 95 percent of Internet devices sold, such as mobile Wi-Fi hot spot and USB dongles, were LTE-equipped, he noted.

Verizon's 4G rollout is ahead of schedule, with the carrier having already exceeded its year-end goal of rolling out service to 185 million people, the company added. As of Oct. 20, 4G service was available to 186 million people in 165 markets, and more markets will go on-line by year's end, Shammo said.

In other comments, Shammo said net additions of prepaid voice subscribers, excluding prepaid data plans for tablets, began to rise when the carrier added a new prepaid plan and Verizon returned to RadioShack stores.

Here's how the carriers' financial metrics turned out in the quarter:

Number of wireless connections: Verizon Wireless expanded its subscription base to 107.7 million, up 6.5 percent from a year ago. The number of net new additions rose 7 percent from the year-ago quarter to 1.34 million. The growth rate in net adds, however, was down dramatically from the second quarter's 36 percent gain and the first quarter's 17.9 percent gain.

In the second quarter, the company posted more net new connections -- 2.21 million -- than it did in any previous quarter in recent years.

Wireless revenues: Operating revenues grew 9 percent to $17.7 million following a second-quarter gain of 10.1 percent and a first-quarter gain of 10.2 percent.

Wireless operating income: Operating income grew 6.1 percent to $5.2 billion following no growth in the second quarter a 0.5 percent gain in the first quarter.