Verizon adds 1.7M subs in Q4, powered by LTE

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Verizon Wireless (NYSE:VZ) added fewer total subscribers in the fourth quarter of 2013 than it did in the fourth quarter of 2012, but still powered ahead with 1.7 million net customer additions in the period. Although T-Mobile US (NYSE:TMUS) is wreaking havoc in the industry with its lower prices and offers to pay customers' early termination fees if they switch and trade in their phones, T-Mobile's aggressive tactics do not appear to have slowed Verizon much in the fourth quarter.

Click here for key slides from Verizon's fourth quarter.

During Verizon's earnings conference call, Verizon Communications CFO Fran Shammo said that although there has been a great deal of talk in the market on a price war because of the moves T-Mobile has made, the chatter is over-hyped. Most of the costs to consumers are shifting from rate plans to device costs for equipment installment or device financing plans, he said, so there has not been much of a net drop in prices per month that customers pay.

Shammo said Verizon's Edge early upgrade program, which it introduced last summer, is generating less than 1 percent of the carrier's profitability and is not "a significant portion of our portfolio." That said, Verizon will remain competitive and will respond where and when it feels it must. "We will compete and respond accordingly when we need to," Shammo said.

LTE remained a strong growth driver for Verizon in the quarter. The carrier is planning to augment its LTE network in 50 different cities with AWS spectrum in the first half of 2014 to avoid potential capacity issues. That process includes seeding the customer base with AWS-capable devices, as well as deploying in-building coverage and Distributed Antenna Systems. The carrier said that 69 percent of its data traffic now goes over its LTE network, up from the 66 percent it revealed in December.

Verizon also recently agreed to sell its lower 700 MHz A Block spectrum to T-Mobile for $2.365 billion in cash, capping months of feverish speculation over whether the carriers would strike a deal for the airwaves. Further, Shammo said that the company expects its $130 billion deal to acquire Vodafone's 45 percent stake in Verizon Wireless to close on Feb. 21.

"Verizon posted strong results beating on subs and margin," New Street Research analyst Jonathan Chaplin wrote in a research note. "While this is particularly impressive in the face of competitive pressure from TMUS, we expected VZ to deliver strong results into the deal close, which is roughly one month away. Longer term, we are still concerned about the headwind that rising competitive intensity will create."

Here's a breakdown of Verizon's key quarterly metrics:

Subscribers: The carrier added 1.7 million retail net connections in the fourth quarter, including 1.6 million net retail postpaid connections. Verizon said tablet net adds made up 625,000 of company's retail postpaid connections in the quarter.

The company added 4.1 million total net retail postpaid connections in 2013. These additions exclude acquisitions and adjustments.

At the end of 2013, the company had 102.8 million retail connections, a 4.7 percent increase year-over-year, including 96.8 million retail postpaid connections. The company had 35.1 million retail postpaid accounts, with 2.76 connections per account.

Financials: Verizon said total wireless revenues were $21.1 billion in the fourth quarter, up 5.7 percent year-over-year. Service revenues in the quarter clocked in at $17.7 billion, up 8 percent from the year-ago period, marking the fifth consecutive quarter of at least 8 percent growth. Retail service revenues grew 7.5 percent year-over-year, to $17 billion, the carrier said.

ARPA: Verizon no longer reports average revenue per user (ARPU) but instead now is reporting average revenue per account (ARPA). The company made the change to account for its Share Everything shared data plans, which let customers add multiple devices to one account. Verizon's retail postpaid ARPA was $157.21 per month, 7.1 percent higher than in the fourth quarter of 2012. The company effectively doubled the number of accounts on Share Everything in 2013, from 8.1 million to 16.2 million.

Margins: Verizon said it had a wireless operating income margin of 29.5 percent, and segment EBITDA margin on service revenues 47 percent. Those figures are lower than the  33.8 percent operating income margin and a 51.1 percent segment EBITDA margin in the third quarter, but higher than the operating income margin of 24 percent and wireless EBITDA margin of 41.4 percent in the fourth quarter of 2012.

Verizon grew its margins significantly in 2013. For full-year 2013, operating income margin was 32.1 percent, up 3.4 percent from 2012 and segment EBITDA margin was 49.5 percent, up 2.9 percent from 2012.

Smartphones: Verizon said it activated 8.8 million smartphones in the fourth quarter, down from 9.8 million in the year-ago period but up from 7.6 million in the third quarter. Verizon said 87 percent of device activations in the fourth quarter were phones.

At year-end 2013, Verizon had 70 percent smartphone penetration in its retail postpaid customer phone base, up from 67 percent at the end of the third quarter of 2013 and 58 percent at the end of 2012.

LTE: Verizon said its LTE network is now available to 97 percent of the U.S. population in more than 500 markets covering nearly 305 million POPs, including those in areas served by the company's LTE in Rural America partners.

Verizon said it activated 9 million LTE devices in the fourth quarter. The company now has 42.7 million LTE devices in its subscriber base, or 44.1 percent of its postpaid connections, up from 21.6 million devices and 23.3 percent of its postpaid connections in the year-ago period.

Churn: Verizon's retail postpaid churn was 0.96 percent, essentially flat from the third quarter and year-ago period. Total retail churn was 1.27 percent in fourth of quarter 2013, up from 1.24 percent in the year-ago period.  

For more:
- see this release
- see this The Verge article
- see this CNET article

Special Report: Wireless in the fourth quarter of 2013

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