Verizon adds 1.3M postpaid subs in Q3, sees jump in EIP adoption in shift away from smartphone subsidies

Verizon Wireless (NYSE: VZ) essentially held steady in the third quarter, reporting solid postpaid subscriber additions and boosting the number of postpaid phone customers it added in the second quarter. The carrier also saw increased adoption of its equipment installment plans (EIPs).

The company's plodding, methodical addition of customers quarter after quarter continued as the carrier has essentially bet that its network quality and reach, repeatedly reaffirmed from third-party network testing firm RootMetrics as the industry leader, will help insulate it from aggressive moves by T-Mobile US (NYSE:TMUS) and other competitors.

Verizon Wireless added 1.3 million retail postpaid customers in the third quarter, and while that was down from 1.52 million a year ago, it was up from 1.134 million in the second quarter. Verizon also saw improvements from the second quarter in terms of the number of LTE smartphones it added as well as in total postpaid phone net adds. 

On the company's earnings conference call Verizon Communications CFO Fran Shammo said that the wireless market will remain competitive and will likely see the usual spate of promotions in the fourth quarter as the holiday shopping season approaches. However, he said Verizon will continue to focus its marketing on its network and the idea that "better does matter" in terms of network quality. He also noted that with the changes Verizon made in August to simplify its rate plan structure and move to an EIP model for all new customers, that means Verizon is a simpler company for customers to interact with than before. 

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

Subscribers: Verizon added 430,000 postpaid phone customers in the quarter, up from 321,000 in the second quarter.

The company said that it added 694,000 smartphone subscribers in the quarter, which were offset by a net decline of 264,000 feature phone customers. Verizon said it added 818,000 postpaid tablet customers. The carrier said it lost 80,000 prepaid customers in the third quarter. These net additions do not include any wholesale or Internet of Things connections.

Financials: Verizon said total wireless revenues were $23 billion in the third quarter, up 5.4 percent year-over-year. Service revenues clocked in at $17.6 billion, down 4.1 percent year-over-year, while equipment revenues increased to $4.3 billion in the quarter, up from $2.5 billion, as more customers chose to buy new devices through EIP. Verizon said service revenues plus installment billings increased 1.2 percent year-over-year.

Smartphones:  Verizon continued to see more customers choose its equipment installment plan in the third quarter, with 58 percent of phone activations on such plans, compared with 49 percent in the second quarter and only 12 percent in the year-ago period. Verizon expects the percentage of phone activations on installment plans to increase to about 70 percent in the fourth quarter.

During the third quarter, Verizon said 5.6 million phones were activated on device installment plans. Verizon said it has about 19 million device payment phone connections in total, representing around 22 percent of its postpaid phone base. Overall, more than 30 percent of Verizon's postpaid phone customers are on unsubsidized service pricing.

LTE: Overall, Verizon added 4 million LTE devices in the third quarter and added 889,000 LTE smartphones to its subscriber base, up from 842,000 in the second quarter.

The carrier said LTE devices now constitute more than 76 percent of the retail postpaid connections base, with 80 million total LTE connections. Verizon said the LTE network is now handling around 89 percent of its total wireless data traffic, an increase of about 75 percent in network data megabytes in the past year.

Churn: Verizon said retail postpaid churn was 0.93 percent, down from 1.0 percent in the year-ago period but up slightly from 0.90 percent from the second quarter.

New Street Research analyst Jonathan Chaplin said in a brief research note that Verizon's "spectrum shortfall continues to pose a serious structural challenge (though we saw scant evidence in this quarter's results with churn better than expected despite network congestion in dense markets)."

For more:
- see this release
- see this CNET article 
- see this Reuters article

Special Report:  Wireless in the third quarter of 2015

Related articles:
Analysts: AT&T's aggressive embrace of EIP will help it fare better financially than Verizon in Q3
Verizon, AT&T to present diverging video strategies during Q3 earnings
Analyst: T-Mobile likely gained most subs in Q3 and AT&T fared poorly, based on social media mentions of switching
Verizon beats T-Mobile in postpaid net adds in Q2, thanks to tablets

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