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Verizon Growth Plan: Dialing For Data

Bedminster, N.J. — Verizon continues to focus on driving up data usage to drive revenue growth, as its second-quarter financial results show.

Tablets came to the aid of Verizon Wireless again to account for most of the carrier’s second-quarter increase of 1.1 million retail net subscriber additions.

The carrier posted 852,000 postpaid tablet net subscriber additions and 321,000 postpaid phone net adds, delivering a combined 1.1 million gain that was double that of the first quarter’s 565,000 gain. Compared with the year-ago quarter, however, retail postpaid net adds were down 21.3 percent, and for the first half, they were down 14.2 percent to 1.7 million.

Verizon is pinning its revenue growth not only on driving up data usage through tablets but also through expanding its still-nascent Internet of Things business, launching its mobile-first over-the-top video service in late summer, and improving 4G LTE network capacity to encourage additional data usage, chief financial officer Fran Shammo said during an investors conference call.

The late-summer rollout of the LTE-broadcast video service will be an initial rollout, with additional services being added as the year progresses, Shammo said. All smartphones sold since the fourth quarter incorporate LTE multicast technology except for the iPhone 6 and 6 Plus, Shammo noted.

Despite continued tablet growth, Shammo noted that tablet penetration of Verizon’s postpaid subscriber base is only 10 percent, or 9.6 million tablets, making room for additional sales of the devices, which he said drives up revenues and produces lower churn.

To make room for additional revenue-producing data traffic, Verizon has begun re-farming its 1900MHz spectrum to 4G LTE, joining the company’s 700MHz and AWS-1 LTE spectrum. The company also continues to pursue its network “densification” program to add data capacity in heavy-use markets. The program is on track and includes in-building cells, Shammo said.

Overall LTE data traffic has doubled in the past year, thanks to 4G devices constituting 73 percent of retail postpaid connections and the number of 4G smartphones in use rising 40 percent to 61.6 million in the past year, up by 17.8 million, the company said.

Additional potential for data growth comes from the 9 million subscribers still using 3G smartphones and 16 million subscribers still using basic phones, he said.

Only 40 percent of the carrier’s spectrum is LTE-enabled and supports 80 percent of the carrier’s data traffic, so the company has plenty of spectrum to accommodate its data-growth plans, though the company won’t rule out participating in 600MHz TV-band spectrum auctions planned in the first quarter of next year, depending on the auction rules, Shammo said.

Here’s what else the company revealed:

Edge phone-installment purchase plans: The percentage of phone activations on installment plans hit 49 percent, up from the first quarter’s 39 percent and the year-ago 18 percent. Verizon expects the percentage to grow in the third quarter to 60 percent.

Plan growth is exceeding expectations because “the market has moved us there,” Shammo said.

Retail prepaid: The carrier lost 126,000 prepaid retail nets adds in the quarter and 314,000 in the first half.

Total retail net adds: Combined postpaid and prepaid retail net adds hit 1 million, down 29.4 percent from the year-ago quarter. For the first half, total retail net adds were down 30 percent to 1.4 million.

Retail postpaid churn: The metric improved sequentially and year-over-year to 0.9 percent, marking the lowest churn rate of any quarter in three years, the company said.

Wireless operating revenue, income: Operating revenue rose  5.3 percent to $22.6 billion; operating income rose 10.2 percent to $7.7 billion; and operating income margin slipped to 34 percent from the year-ago 34.5 percent but was up from the first quarter’s 32.5 percent.

Total subscriber base: At the end of the quarter, Verizon had 103.7 million retail postpaid connections (phones, tablets and other data devices such as mobile hot spots) and 5.8 million retail prepaid connections for a total of 109.5 million retail connections.

Verizon does not report MVNO and M2M subscriptions, but Shammo said IoT and telematics revenue hit $165 million in the quarter and $320 million in the first half. It was $150 million in the first quarter.