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Verizon Posts Q2 Growth, But Edge Underperforms

Bedminster, N.J. – Verizon Wireless reversed its first-quarter drop in retail net subscriber additions (including postpaid and prepaid subscribers) and reversed the first-quarter shrinkage of its postpaid phone-subscriber base.

But Verizon missed its forecast for signing up consumers to its Edge installment-payment plan for unsubsidized smartphones.

Separately, the company said it would launch multicast video service over LTE in 2015 but would begin offering phones with embedded multicast-video chips in the second half in preparation. Video service would include live real-time events.

The carrier will “try to make content available without a (Fios wireless) linear-TV subscription” because of the need to appeal to cable-cutting youth, said CFO Fran Shammo in a conference call with analysts.

In announcing its second-quarter financial results, the carrier said retail net adds rose 37.5 percent to 1.43 million compared to the first’ quarter’s drop of 23.8 percent to 549,000. The numbers include phones, tablets, USB modems, and mobile hot spots.

The net add gain was driven solely by a 53.1 percent gain in postpaid net adds to 1.44 million, which offset a 14,000 decline in the prepaid subscriber net losses.

As in the first quarter, postpaid gains were driven largely by activations of cellular-equipped tablets. The number of postpaid-phone net adds came only to 304,000, but the number of postpaid-tablet net adds came to record 1.15 million.

The quarter’s postpaid-phone gain contrasts with a first-quarter 539,000 net loss of postpaid phone subscribers.

The pace of postpaid-phone net adds could grow in the second half because of “several dynamic devices” coming to market, said chief financial officer Fran Shammo in a conference call with analysts.

Tablets, he continued, represent a “highly profitable growth opportunity.” Tablets are highly profitable because they are subsidized less than phones, add incremental value, and lower the churn rate among subscribers who own a phone and a tablet. Because the carrier’s postpaid tablet subscriber base is only 5.4 million, the segment offers “a lot of opportunity,” he said.

In discussing the company’s Edge installment-payment plan for unsubsidized phones, Shammo noted that only 18 percent of new postpaid subscribers opted for Edge in the second quarter. Up from less than 15 percent in the first quarter, Verizon’s percentage was far lower than his original forecast of 30 percent.

Shammo said he expected 30 percent because the Edge program was being rolled out to the indirect channel for the first time. One reason for the missed forecast, he said, is that the carrier ran a lot of Mother’s Day and Father’s Day promotions that drove consumers into its stores rather than into indirect stores. Carrier store salespeople aren’t incentivized to sell Edge but to offer consumers a choice that best fits their needs, he noted.

Separately, the percentage of postpaid accounts on a More Everything shared-data plan rose to 55 percent from the previous quarter’s 50 percent and 36 percent in the second quarter of last year.

In announcing wireless revenues and profits, Verizon said wireless operating revenues rose 7.5 percent to $21.5 billion, wireless operating income rose 8.1 percent to $6.99 billion, and wireless operating margins rose to 32.5 percent from the year-ago 32.4 percent. Fourth-quarter operating margins also rose, hitting 29.5 percent from the year-prior 24 percent.