Bedminster, N.J. – Fourth-quarter sales of LTE-equipped tablets again drove double-digit percentage gains in the number of net new Verizon Wireless retail postpaid connections in the fourth quarter, Verizon reported.
Of 1.99 million postpaid net adds, only 672,000 were phone net adds, with the rest coming mainly from LTE tablets.
Postpaid net adds grew at a double-digit rate for the third consecutive quarter following a first-quarter 2014 drop, with tablets driving the postpaid gains in all three quarters.
The 26.3 percent gain in postpaid net adds, however, came on an 11.7 percent drop in wireless operating income to $5.5 billion. The company cited the “significant increase in activations pressured fourth-quarter wireless profitability.”
Operating income margin fell to 23.5 percent from the year-ago quarter’s 29.5 percent, and full-year operating margin fell to 30.5 percent from 32.1 percent.
With the tablet surge, tablets accounted for 8 percent of the carrier’s subscriber base at the end of 2014, “and tablets will continue to be a very large piece of our growth in the future,” said CFO Fran Shammo, because they reduce churn, increase network usage, and have low carrier subsidies.
In a sign of hyper competition, Verizon’s postpaid churn rate rose to 1.14 percent in the quarter from a year-ago 0.96 percent because the carrier is not going to extraordinary lengths to keep low-value subscribers from switching to other carriers, Shammo said. The company “will have a higher churn rate because some customers we will not financially keep,” he said. The company will pursue net adds and upgrades “that are financially beneficial.” The company, for example, went aggressively after the 3.2 million iPhones that recently came out of contract, he said.
Many financially beneficial upgrades will come from the 13 million subscribers still using 3G phones and the 18.5 million customers still using basic phones, he said.
Full-year postpaid churn rose to 1.04 percent from 0.97 percent.
In other matters, Shammo said activations on the company’s EDGE installment-payment program for unsubsidized phones grew to 25 percent of phone activations in the quarter, up from a third-quarter 12 percent and a second-quarter 18 percent. Shammo expects the percentage to grow to 34 to 35 percent in 2015.
Eight percent of the postpaid phone base, representing more than 7 million phones, are in the EDGE program, he said.
In other metrics:
--Total net adds – postpaid and prepaid combined – grew 25 percent in the quarter to 2.1 million, and full-year net adds grew 24.5 percent to 5.57 million.
--Retail prepaid net ads grew 1.3 percent to 81,000 for the quarter but fell 75.7 percent for the year to 86,000
--Wireless operating revenues grew 11 percent to $23.5 billion for the quarter and grew 8.2 percent for the year to $87.7 billion.
--Wireless operating income fell 11.7 percent to $5.5 billion in the quarter, but full-year wireless operating income rose 2.9 percent to $26.8 billion
--The company has more than 15 million Internet of Things (IoT) connections, pointing to IoT’s potential to drive further growth.
--Of postpaid phones activated in the quarter, 93.6 percent were smartphones up from the year-ago 88.9 percent, and for the year, 91.6 percent were smartphones, up from 85.7 percent in 2013.
--And out of the total postpaid phone base, 78.6 percent used smartphones in the quarter, up sequentially from 76.5 percent.
Verizon ended the year with a retail prepaid and postpaid retail subscriber base of 108.2 million, excluding MVNO and M-to-M (IoT) connections. Of the 102.1 million retail postpaid connections, 8 million were tablets, said Shammo.