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Tablets Take Lead In Verizon’s Q3

Bedminster, N.J. — Third-quarter sales of LTE-equipped tablets again powered a double-digit percentage gain in Verizon’s retail postpaid net new subscriber additions.

The carrier also announced plans to focus more on advertising Edge installment-plan price points in the fourth quarter to improve its Edge take rate.

In other comments, CFO Fran Shammo:

–said Verizon has experienced its highest backlog of new iPhones with the launch of the iPhone 6 and 6 Plus, and that will contribute to a “significant upgrade rate in the fourth quarter” at Verizon.

–declined to comment on why Verizon is not included in the new iPads’ soft-SIM, which enables consumers to switch among T-Mobile, Sprint, and AT&T without changing SIM cards. “We have our own SIM card” for direct and indirect channels, he said.

–and said the industry is moving from prepaid to postpaid, given that entry-level prices in single-line plans are “pretty darn close” to what prepaid subscribers pay.

Verizon, however, hasn’t benefitted much from that trend because of its tough credit standards for postpaid subscriptions, Shammo said.

LTE Broadcast: On the topic of LTE video broadcasts, Shammo said most new phones arriving in the fourth quarter will have an LTE-Broadcast chip following a third quarter in which some new phones came with the chip.

LTE Broadcast service, however, won’t begin for another year from Verizon because content providers are waiting for the installed base of potential subscribers to grow, he said. The business model hasn’t been finalized to determine whether it will be a revenue-share model, advertising model, or consumer-pay model, he said.

Tablet gains: In its fiscal third quarter, Verizon posted its second consecutive quarter of double-digit percentage gains in net new postpaid subscribers, and again the majority of net adds came in tablets, not smartphones.

The carrier added 1.52 million net retail postpaid subscribers in its fiscal third quarter, up 63.5 percent from the year-ago quarter and up 37.4 percent for the year-to-date to 3.5 million. That follows second-quarter growth of 37.5 percent to 1.43 million and a first-quarter drop of 23.8 percent to 549,000. The numbers include phones, tablets, USB modems, and mobile hot spots.

In the latest quarter, retail net-add gains came from 457,000 postpaid-phone net adds and 1.1 million postpaid tablet net adds. Postpaid phone net adds were up sequentially from the second quarter’s 304,000, but the number of postpaid-tablet net adds was down slightly from the second quarter’s record 1.15 million.

Although postpaid net adds soared in the quarter, prepaid net adds fell to 9,000 from a year-ago 134, 000.

As a result total retail net adds (prepaid and postpaid combined) hit 1.53 million, up 43.7 percent from the year ago and up 24.2 percent for the year to date to 3.5 million.

Smartphone, tablet growth: Of the retail postpaid phones activated, 91 percent were smartphones, up from a year-ago 84.9 percent. That brought up the smartphone share of the company’s retail postpaid phone base to 76.5 percent, up from a year-ago 67.2 percent.

The company nonetheless sees lots of potential for selling more LTE phones, given that 17 million postpaid subscribers are still using 3G phones and another 20 million use basic phones. The company also sees lots of potential in selling more 4G tablets, given that the carrier’s postpaid tablet base is only 6.5 million subscribers out of the company’s total 106.2 million subscriptions (prepaid and postpaid combined).

Edge down: In other metrics, the carrier said the percentage of postpaid subscribers paying for a phone on the Edge installment plan fell to 12 percent in the third quarter from the second quarter’s 18 percent, but Shammo said he expects the percentage could more than double in the fourth quarter because the carrier will more aggressively advertise Edge installment price points, as other carriers are.

The percentage of postpaid subscribers using a More Everything shared-data plan grew to 57 percent, up from the second quarter’s 55 percent and the year-ago 42 percent.

Revenue, margin: In financial metrics, the carrier said total wireless operating income grew 7 percent to $21.8 billion in the quarter and by 7.2 percent for the year to date to $64.2 billion.

Wireless operating grew to $7 billion from a year-ago $6.9 billion, and operating income margin slipped to 31.9 percent from 33.8 percent. For the year to date, margin was up to 33.1 percent from 33 percent.