Verizon Wireless (NYSE:VZ) added 1.1 million net retail connections in the quarter, including 927,000 net retail postpaid connections. However, those results were below some analyst expectations--and New Street Research analyst Jonathan Chaplin warned that Verizon's sluggish third quarter results could be attributed to increased competition from the newly recharged T-Mobile US (NYSE:TMUS).
Verizon's third quarter subscriber numbers were down from the 1.8 million retail net additions the carrier notched in the third quarter of 2012, which included 1.5 million postpaid connections. However, the figures were up from the 1.038 million total retail additions Verizon reported in the second quarter of this year, which included 941,000 retail postpaid net connections.
Credit Suisse's analysts noted that Verizon's 927,000 postpaid net adds in the third quarter were below the 940,000 the firm had been expecting and far off from the 1.047 million that a consensus of financial analysts predicted. "Recall management guided to sequential postpaid net add improvement in 2013," the analysts noted.
"There were clear signs that a resurgent T-Mobile is impacting even Verizon," wrote New Street's Chaplin. "Net adds missed consensus on higher than expected churn. Competition will likely remain intense for the next few quarters and stiffen further as Sprint recovers later in 2014."
T-Mobile last year announced its "uncarrier" strategy aimed at lowering prices for customers and simplfying service plans, mainly through removing the standard two-year contract requirement.
However, other analysts were decidedly more upbeat, noting that Verizon continues to post industry-leading metrics. "The operator will continue to widen its lead over the wireless competition by increasing its LTE capacity through supplemental launches," predicted Eric Costa, an analyst in TBR's Networking and Mobility Practice. "The lead in LTE will translate into industry high postpaid net additions in 4Q13 along with continued adoption of the Share Everything plans and LTE devices."
Aside from its subscriber results, Verizon reported a bump in its margins in the third quarter. The company also posted growth in smartphone sales and said its LTE network traffic had jumped.
The results also come shortly after Verizon Communications announced a $130 billion deal to acquire Vodafone's 45 percent stake in Verizon Wireless. The company secured a record $49 billion debt offering to finance the deal. Verizon expects to close the deal in the first quarter of 2014.
During the company's earnings conference call, Verizon Communications CFO Fran Shammo said the carrier "will continue to focus on executing our gameplan." Shammo highlighted the continued growth of LTE devices and traffic on the carrier's network. He also said fully 64 percent of its wireless data traffic is now running on the LTE network. That is up from 59 percent oat the end of the second quarter and up from the 50 percent mark Verizon revealed in April.
Here's a breakdown of Verizon's key quarterly metrics:
Subscribers: Verizon now has 101.2 million total retail connections. Of the 927,000 net retail postpaid additions Verizon had in the third quarter, the company said 481,000 were phones and 370,000 were Internet devices, including tablets.
Financials: Verizon said total wireless revenues were $20.4 billion in third-quarter 2013, up 7.2 percent year-over-year. Service revenues in the quarter totaled $17.5 billion, up 8.4 percent year- over-year. Verizon said retail service revenues grew 8 percent year over year, to $16.8 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 shared data plans, which let customers add multiple devices to one account. Verizon's retail postpaid ARPA was $155.74, up 7.1 percent year-over-year. Shammo said 42 percent of Verizon's postpaid accounts are on Share Everything plans, with 35 million accounts and 2.72 connections per account.
Margins: Verizon said it had a 33.8 percent operating income margin in the quarter and a 51.1 percent segment EBITDA margin on service revenues, which was up from 50 percent in the year-ago period and 49.8 percent in the second quarter..
Smartphones: Verizon activated 7.6 million smartphones in the quarter, 29 percent of which were new Verizon customers. That is up from 6.4 million smartphone activations in the year-ago period and 7.5 million in the second quarter. In the third quarter, Shammo said 51 percent, or 3.87 million, were Apple (NASDAQ:AAPL) iPhones. Shammo did say that carrier had seen supply constraints at the end of the quarter as the iPhone 5s and 5c were launched, and so some of those sales spilled over into the fourth quarter.
At the end of the third quarter, smartphones accounted for more than 67 percent of the Verizon postpaid customer phone base, up from 64 percent at the end of the second quarter, and up from 53 percent in the ear-ago period.
LTE: Verizon said its LTE network is now available in more than 500 markets to 97 percent of the U.S. population and covers more than 303 million POPs, including those in areas served by the company's LTE in Rural America partners. Shammo said Verizon had 6.8 million LTE device activations in the third quarter.
Shammo also confirmed the carrier is deploying its AWS spectrum in certain markets to augment capacity. He said 38 percent of Verizon's customers are on LTE and generate 64 percent of its data traffic. Shammo declined to say what kind of speeds customers will get in markets where Verizon has deployed AWS spectrum on top of its 700 MHz spectrum, but said the goal of the deployment is to increase capacity and produce a consistent and reliable experience. Verizon has previously said it would deploy AWS spectrum on 5,000 cell sites by year-end.
Shammo said Verizon would launch its first Voice over LTE smartphone by year-end and will more fully roll out VoLTE in the first half of 2014. He reiterated that Verizon will not rush the VoLTE launch because the carrier wants to ensure that VoLTE calls have the same quality as 3G CDMA voice calls.
Churn: Verizon's retail postpaid churn was 0.97 percent in the third quarter, up slightly year-over-year. Retail churn was 1.28 percent in the third quarter, also up slightly from the year-ago period.
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