Verizon CEO hints at Q3 wireless subscriber growth, possible sale of towers

Verizon (NYSE: VZ) CEO Lowell McAdam said the carrier's wireless postpaid retail net additions have grown 40 percent so far during the third quarter when compared with last year's period, when the company posted 927,000 additions. However, he said the carrier's margins will be pressured in the third quarter due to surprisingly sluggish sales of Verizon's handset upgrade program, called Edge.

Specifically, McAdam said that Edge sales have only accounted for roughly 12 percent of Verizon's total phone activations in the third quarter so far. That means that more customers than expected are making use of Verizon's standard two-year service contract, which can weigh on operators' margins because of the up-front cost of the subsidized phone in the contract.

"Verizon expects strong customer growth and low Edge adoption rate this quarter to date to put some pressure on the wireless segment EBITDA service margin (non-GAAP) on a sequential basis. In second-quarter 2014, Verizon reported a wireless segment EBITDA service margin of 50.3 percent," Verizon said in a press release following McAdam's comments at a Goldman Sachs media conference.

Verizon isn't the only carrier expecting subscriber growth in the third quarter. T-Mobile US (NYSE:TMUS) yesterday said August was its biggest month ever in terms of net subscriber additions, with the company adding 2.7 million gross customers in the month.

However, the sluggish sales of Verizon's Edge program are surprising considering the carrier grew the percent of Edge customers from 13 percent in the first quarter to 18 percent in the second quarter. AT&T Mobility (NYSE: T), for its part, is heavily pushing its own handset upgrade program, called Next--in the second quarter, fully 50 percent of all AT&T subscribers chose the carrier's Next plans.

Interestingly, McAdam also said that Verizon would be open to selling some of its towers if the price was right. "Those deals are coming to us a little more now, and if an opportunity presented itself to increase shareholder value" Verizon would be interested in pursuing it, McAdam said, according to Reuters.

McAdam said Verizon received interest in its towers two years ago, but the bids weren't high enough.

The nation's wireless carriers are not averse to selling their tower holdings. For example, in 2013, AT&T agreed to sell and lease 9,700 of its cell towers to Crown Castle in a $4.85 billion deal.

Finally, Verizon also hinted at the operator's mobile video plans. According to Deadline, McAdam said Verizon hopes to launch a mobile video service by the middle of next year that will offer users a "bundle with major broadcast providers" plus a collection of  "custom channels" like DreamWorks Animation's AwesomenessTV. "It's targeted content," he said.

McAdam said that the days of bundled pay-TV channels are numbered. "No one wants to have 300 channels on your wireless. Everyone understands it will go to a la carte. The question is, what does that transition look like?" he said. Millennials "really do want to look at this content on their iPads" and other devices.

For more:
- see this Verizon release
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Deadline article

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