Verizon adds 941K postpaid subs in Q2, crosses 100M total retail connections

Verizon Wireless (NYSE:VZ) added 941,000 postpaid customers in the second quarter. The carrier, the nation's largest, also said it now has 100.1 million total retail connections, and that 36 percent of its postpaid customer base is on its Share Everything shared data plans, which were introduced a little more than a year ago.

The carrier also touted its LTE network, which has the most coverage of any U.S. carrier. Verizon said that 59 percent of all of its data traffic is now riding on its LTE network, up from the 50 percent mark Verizon revealed in April.

Verizon's quarterly net adds came in above most analyst estimates: "Postpaid net adds were 941k, above our/Street estimate of 827k/839k," noted Jefferies analysts in a research note.

During the company's earnings conference call, Verizon Communications CFO Fran Shammo provided more color on several strategic and business opportunities for Verizon Wireless. Shammo said that Verizon is interested in exploring options to enter the Canadian wireless market, but he stressed that it is "really an exploratory exercise for us." He said most of Canada's population is between Toronto and Quebec, and that aligns with Verizon's coverage. He also said Canada's 700 MHz spectrum auction, set for January, will auction off licenses that align with Verizon's own 700 MHz holdings.

Verizon reportedly made an initial offer of somewhere between $600 million and $800 million to buy fledgling Canadian wireless carrier Wind Mobile. Reports have also indicated that Verizon is in talks with rival wireless startup Mobilicity over a possible deal.

Shammo also said through the first fall of the year, Verizon had spent $4.3 billion on wireless capital expenditures, up 8.6 percent from 2012. He said Verizon is bumping its full-year capex guidance from $16.2 billion to between $16.4 billion and $16.6 billion, due to increased spending Verizon plans to make to improve wireless capacity. Shammo also reiterated that Verizon will launch its first Voice over LTE phone late this year with a full commercial launch in 2014, and that by the end of 2014 it will launch its first LTE-only smartphone.

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

Subscribers: Verizon Wireless added 941,000 retail postpaid net connections, and 97,000 prepaid retail connections, for a total of 1.038 million total retail additions. That's down from 1.2 million total retail additions in the year-ago quarter, but Verizon's postpaid additions are up from 880,000 in the year-ago period and 677,000 retail postpaid net additions in the first quarter. Verizon said it expects to continue to see sequential increases in net additions for retail postpaid connections in the second half of 2013.

Financials: The carrier said total wireless revenue clocked in at $20 billion, up 7.5 percent year-over-year. Wireless service revenues grew to $17.1 billion, up 8.3 percent from the year-ago period. Verizon said retail service revenues grew 7.8 percent year-over-year, to $16.4 billion.

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 plans, which let customers add multiple devices to one account. Verizon's retail postpaid ARPA was $152.50, up 6.4 percent year-over-year. The company said it had 35 million retail postpaid accounts, for an average of 2.7 connections per account.

Margins: Verizon said its wireless operating income margin was 32.4 percent, up from 30.8 percent in the year-ago period, and segment EBITDA margin on service revenues was 49.8 percent, up from 49 percent in the year-ago period.

Smartphones: Verizon activated 7.5 million smartphones in the quarter, 27 percent of which were new Verizon customers. The compares to 7.2 million smartphones added in the first quarter and 5.9 million in the year-ago period. Verizon said 64 percent of its postpaid base had a smartphone, up from 61 percent in the first quarter and 50 percent in the year-ago quarter. Shammo said a little more than 51 percent of Verizon's smartphone activations in the second quarter were Apple (NASDAQ:AAPL) iPhones, equating to around 3.9 million iPhones.

"Verizon's iPhone activations suggest potential upside to our iPhone unit estimate," noted Wells Fargo analyst Maynard Um in a research note.

"Either Verizon is doing much better than other carriers this quarter or our iPhone estimates are conservative," Brian White of Topeka Capital Markets wrote in a note, according to VentureBeat. "Over the past seven quarters, Verizon has accounted for approximately 11% of Apple's total iPhone shipments and 10% in 2QCY12. Based on our current iPhone estimates, Verizon would account for approximately 13.6% of iPhone sales in 2QCY13."

LTE: In late June Verizon said it had substantially completed the first phase of its LTE deployment, and the carrier said today that the network now covers 301 million POPs in 500markets and more than 95 percent of the U.S. population, including those in areas served by the company's LTE in Rural America partners. The carrier plans to begin deploying LTE service on its AWS spectrum in the second half of the year and launching LTE small cells  from Alcatel-Lucent (NASDAQ: ALU) and Ericsson (NASDAQ:ERIC) to help it augment capacity.

Verizon activated 6.4 million LTE devices in the second quarter, double the 3.2 million it had in the year-ago quarter up from 5.9 million in the first quarter. One-third of all Verizon retail postpaid connections are now LTE, up from 12 percent a year ago, Shammo said.

Churn: Verizon's retail postpaid churn was 0.93 percent in the second quarter. Retail churn was 1.23 percent.

For more:
- see this release
- see this VentureBeat article
- see this Verizon presentation (PDF)

Special Report: Wireless in the second quarter of 2013

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Verizon to start refarming PCS spectrum for LTE in 2015
Verizon's Mead reiterates VoLTE launch for 2014, promises more LTE small cells
Verizon's Palmer details the company's AWS deployment strategy, VoLTE launch plans and more
Verizon's profit surges as postpaid additions keep flowing in Q1

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