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Verizon Wireless Profits Rise, Subsidy Reductions Seen

4/19/2012 12:13:26 PM Eastern
Bedminster, N.J. - The number of net new retail subscribers at Verizon Wireless fell in the first quarter by 16.5 percent to 734,000, but the carrier nonetheless boosted wireless revenues and operating income because of higher revenues per user, lower churn rates, cost cutting, and a quarter-over-quarter dip in activations of the heavily subsidized iPhone.

First-quarter wireless operating revenues grew 8.2 percent to 18.3 billion, and operating income grew 28.6 percent to $5.2 billion

Net subscriber additions slipped in part because of the fourth-quarter launch of the iPhone 4S, whose sales surge stole from first-quarter phone activations, the company said.

The fourth-quarter jump in iPhone activations also a contributed to a fourth-quarter 10.7 percent drop in wireless operating income to $4.3 billion.

As part of its cost-cutting efforts, Verizon Wireless reduced expenses during the past two years by $3 billion and has targeted another $2 billion in reductions in 2012, including a reduction in smartphone subsidies, said Verizon EVP/CFO Fran Shammo during an investors' conference call. Other ways to mitigate higher smartphone costs include the imposition next week of a $30 upgrade fee for subscribers who want to upgrade before their contract is up, he said. Beginning in 2010, the company began paring back its device-upgrade programs, including placing limits on the number of upgrades allowed, he noted.

In response to a question about high iPhone subsidies, Shammo would say only Verizon wants to grow its sales of Microsoft's smartphone OS.

In previewing upcoming marketing plans, Shammo said Verizon plans to launch data-sharing plans in mid-summer to enable users to connect multiple devices to a plan. The carrier also plans to add an $80 prepaid smartphone with 1GB data plan. Verizon's prepaid smartphones currently start at more than $200, the carrier's web site shows.

The company also disclosed iPhone, 4G, and tablet activations during the quarter and citied a continuing rise in smartphone sales to retail post-paid subscribers.

In the first quarter, 72.4 percent of the phones activated by retail postpaid subscribers were smartphones, up from a year-ago 60 percent. The percentage of the retail postpaid subscriber base using a smartphone rose to 46.8 percent, up from the fourth-quarter's 43.5 percent and a year-ago 32.2 percent.

iPhone activations hit 3.2 million, down from the fourth-quarter's 4.3 million but still well ahead of last year's first-quarter sales of 2.2 million, the second quarter's 2.3 million, and the third quarter's 2 million.

Activations of all types of smartphones hit 6.3 million compared to the fourth quarter's 7.7 million and third quarter's 5.6 million.

Sales of 4G LTE devices of all types continued to rise quarter over quarter, hitting a record 3.2 million in the first quarter compared to the fourth quarter's 2.3 million and the third quarter's 1.4 million. Of the 3.2 million 4G devices activated on retail postpaid plans, 2.4 million were smartphones, and 765,000 were data devices, including 4G tablets.

4G devices accounted for 9.1 percent of the carrier's retail customer base in the quarter, up from 6.1 percent in the fourth quarter and 0.6 percent in the year-ago quarter.

Total tablets sold by the carrier rose 60 percent in the quarter to 390,000.

In other metrics, the carrier said total data revenues grew 21.1 percent in the quarter to $6.61 billion, accounting for a record 42.9 percent share of total service revenues. 

In detailing the 16.5 percent decline in total retail net subscriber additions to 734,000, the carrier noted that postpaid net adds fell at a greater rate but were offset in part by the second consecutive month of growth in retail prepaid net adds. Prepaid net adds shot up to 233,000 compared to a year-ago net-add loss of 27,000. Postpaid net adds fell 44.7 percent to 501,000.

The retail subscriber base hit a record 92.99 million, excluding machine-to-machine subscriptions and wholesale subscriptions. The company no longer reports those two metrics.

Consolidated results for Verizon Communications, which consists of Verizon's wireline operations and Verizon Wireless, show operating revenues up 4.6 percent to $28.2 billion, and net income rising 19.7 percent to $3.91 billion. Verizon Wireless revenues accounted for 64.7 percent of consolidated revenues.

 
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