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Verizon Wireless Expects Data To Speed Revenue Growth

1/26/2010 02:03:59 PM Eastern

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.

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