Verizon notches 2.3M iPhone activations, 1.2M LTE device sales in Q2

Verizon Wireless (NYSE:VZ) experienced strong growth from sales of Apple's (NASDAQ:AAPL) iPhone 4 and its LTE devices in the second quarter, continuing trends that started in the first quarter.

Verizon second quarter

Click here for key figures from Verizon's second quarter results.

Verizon activated 2.3 million iPhones in the second quarter, slightly above the 2.2 million it activated in the first quarter--Verizon started selling the iPhone in February, well into the first quarter. Verizon rival AT&T Mobility (NYSE:T) activated 3.6 million iPhones in both the first and second quarter (AT&T also sells the older and less expensive iPhone 3GS).

In a separate move that has been expected for months, Lowell McAdam was named CEO of Verizon Communications, the majority owner of Verizon Wireless, replacing Ivan Seidenberg, who will remain chairman. McAdam is stepping up from the COO role and has been Seidenberg's heir apparent for some time now. McAdam will become CEO effective August 1. He was previously CEO of Verizon Wireless.

During the carrier's quarterly conference call with analysts, McAdam touched on the carrier's new usage-based smartphone data pricing, which was introduced July 7. He said that moving to such pricing was "like gravity" and was inevitable because of spectrum constraints. And while he said Verizon expects to see some churn as a result of the pricing changes, which only affect new smartphone customers, he said currently around 95 percent of Verizon's smartphone subscriber base uses less than 2 GB of data per month. Verizon charges $30 per month for 2 GB.

Here is a breakdown of Verizon's key metrics for the quarter:

LTE: Verizon said its LTE network is now live in 102 markets, and the company will expand to 175 markets covering 185 million POPs by year-end. The company sold 1.2 million LTE devices in the quarter, up from 500,000 in the first quarter, and introduced three new LTE devices: the Samsung Droid Charge, LG Revolution and the MiFi 4510L LTE Mobile Hotspot by Novatel Wireless. On the company's earnings conference call with analysts, Verizon Communications CFO Fran Shammo said that 69 percent of Verizon's net retail postpaid additions in the quarter were from LTE devices or the iPhone.

Smartphones: The carrier said that 36 percent of its postpaid subscriber base are now smartphone customers, up from 32 percent in the first quarter and 21 percent in the year-ago period. Verizon said 63 percent of its smartphone sales in the quarter were to customers new to the smartphone category.

McAdam said the carrier is about a quarter behind pace on smartphone adoption based on its expectations from January. "We expected an iPhone refresh this summer. We expect it will probably be sometime in the fall, and I think you'll see a significant jump there when we get to that point," he said. "Our fourth-quarter lineup is going to be very robust. I think we're going to have, probably in my entire career, the best fourth-quarter" device lineup, he said.

In an interview with Bloomberg, Shammo said Verizon likely wil not reach 50 percent smartphone penetration until the end of the first quarter of 2012. AT&T said Thursday that 50 percent of its postpaid subscriber base have smartphones.

"Verizon is not taking the share of the smartphone category that we thought they would," wrote Jonathan Chaplin of Credit Suisse in a note on the carrier's earnings. "Smartphones accounted for 70 percent of sales at AT&T compared to 60 percent at Verizon. AT&T sold 3.6 million iPhones compared to 2.3 million at Verizon."

However, Technology Business Research analyst Ken Hyers offered a different take. "AT&T added more iPhone subscribers in 2Q11--3.6 million, compared to Verizon's 2.3 million. But Verizon also sold 1.4 million 4G LTE smartphones and recorded 2.2 million net subscriber additions for the quarter, raising its entire wireless subscriber base to 106.3 million, while AT&T added 1.1 million customers in 2Q11, bringing it to 98.6 million subscribers. In the race to add customers, Verizon clearly demonstrated that size, a 4G network, plus savvy marketing, really does matter."

Subscribers: Verizon notched 2.2 million total net subscriber additions, including 1.3 million retail postpaid customers, its highest since the fourth quarter of 2008, and up from 461,000 retail postpaid additions in the year-ago period. The carrier also added 890,000 wholesale and other connections. These additions exclude acquisitions and adjustments. At the end of the second quarter, Verizon had 106.3 million total connections, an increase of 6.6 percent year-over-year, including 89.7 million retail customers and 16.6 million wholesale and other connections. Verizon said that 9 percent of its retail postpaid subscriber base upgraded their phone in the second quarter.

ARPU: The carrier's retail postpaid average revenue per user grew 1.9 percent, or $1, from the year-ago quarter to $54.12. Retail postpaid data ARPU increased to $21.26, up 15.2 percent year-over-year.  Retail service ARPU also grew 1.9 percent, to $52.49.

Churn: Verizon's retail postpaid churn was 0.89 percent, the company's lowest since second-quarter 2008. Total retail churn was 1.22 percent.

Financials: The company's wireless service revenues in the quarter clocked in at $14.7 billion, up 6.6 percent year-over-year. Data revenues totaled $5.8 billion, up $1.1 billion, or 22.2 percent, from the year-ago period, and represented 39.5 percent of all service revenues. Total revenues were $17.3 billion, up 10.2 percent from the year-ago quarter. The carrier's EBITDA margin was 45.4 percent.

For more:
- see this release
- see this McAdam release
- see this Bloomberg article 

Special Report: Wireless in the second quarter of 2011

Related Articles:
AT&T adds 3.6M iPhones in Q2, still confident on T-Mobile deal
Verizon activates 2.2M iPhones in Q1, sees strong ThunderBolt demand
Wireless operators' Q2 highlights will include connected devices and Sprint's network deals
Sprint scolds Verizon's tiered data plans with new unlimited ads
Verizon confirms it will ditch unlimited smartphone data plans starting July 7

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