Verizon's profit surges as postpaid additions keep flowing in Q1

Verizon Wireless (NYSE:VZ) reported a record-high profit margin in the first quarter of 2013 as it continued to benefit from its Share Everything shared data plans, which were introduced last June. The carrier said that its average revenue per account grew steadily, as it has in the past several quarters. Verizon said that 30 percent of its retail postpaid customers are now on its shared data plans.

Click here for key slides from Verizon's first quarter earnings presentation.

"The standout metric for the quarter was wireless margin strength on lower upgrades," wrote Jonathan Chaplin of New Street Research. "We had been disappointed by a higher than expected upgrade rate in 4Q12, which unwound this quarter."

The nation's largest wireless carrier said it added 720,000 net retail customers in the first quarter, including 677,000 retail postpaid net connections and 43,000 retail prepaid additions. These additions exclude acquisitions and adjustments. Verizon noted that in 2012 its net additions for retail postpaid connections increased sequentially each quarter, and that it "expects a similar pattern of accelerating customer growth in 2013."

In the first quarter of 2012, Verizon had 734,000 retail net customer additions, which included 501,000 retail postpaid net customer additions.

At the end of the first quarter of 2013, the company had 98.9 million retail connections, a 6.4 percent increase year-over-year, including 93.2 million retail postpaid connections and 5.7 million retail prepaid customers.

On the company's earnings conference call, Verizon Communications CFO Fran Shammo said the company is not seeing resistance from customers in terms of adoption of its Share Everything plans, and that adoption is actually ahead of expectations.

"Verizon is firing on all cylinders. In an increasingly saturated market, the company is accelerating subscriber, revenue and profit growth," noted Roger Entner, founder of Recon Analytics and a FierceWireless contributor. "The Share Everything plan is being received enthusiastically by consumers. FiOS continues to make inroads in the internet and video markets taking away share from the cable companies."

Interestingly, Shammo confirmed to Reuters that Verizon made a bid to acquire some of Clearwire's (NASDAQ:CLWR) spectrum. Shammo did not confirm the size of the company's bid, but he said if Verizon did not succeed in buying the spectrum, he would not be interested in leasing spectrum from ClearwireThe Wall Street Journal reported earlier this week that Verizon made an unsolicited offer to Clearwire to purchase Clearwire's spectrum license leases in major markets for up to $1.5 billion.

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

Financials: The carrier said total wireless revenue was $19.5 billion in first-quarter, up 6.8 percent year-over-year. Verizon said service revenue in the quarter clocked in a $16.7 billion, up 8.6 percent from the year-ago period. Retail service revenue also grew 8.6 percent from the year-ago quarter, to $16.2 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 increased 6.9 percent over the first quarter of 2012, to $150.27 per month. The carrier's ARPA was $146.80 per month in the fourth quarter of 2012 and $145.42 per month in the third quarter of 2012. Shammo said Verizon now counts 34.9 million retail postpaid accounts for an average of 2.67 connections per account, up 5.1 percent year-over-year.

Margins: Verizon said its wireless operating income margin was 32.9 percent and segment EBITDA margin on service revenues was 50.4 percent, setting record-highs. That was a sharp bounce back from the fourth quarter of 2012, when Verizon reported a wireless operating income margin of 24 percent and wireless EBITDA margin of 41.4 percent. The figures are also up from the first quarter of 2012, when the carrier posted a 28.6 percent operating income margin and a 46.3 percent wireless EBITDA margin.

Smartphones: Verizon activated 7.2 million smartphones in the quarter, 68 percent of which were LTE smartphones. The company activated 4 million Apple (NASDAQ:AAPL) iPhones in the period, half of which were the LTE-capable iPhone 5. Shammo said 28 percent of the smartphone activations were customers who were new to Verizon, higher than the range of 22 to 24 percent Verizon saw in the first half of 2012. At the end of the first quarter, smartphones accounted for more than 61 percent of the Verizon's retail postpaid customer phone base, up from 58 percent at the end of the fourth quarter of 2012.

Last week Verizon said that, effective Sept. 1, it will no longer allow customers to upgrade their handset at a subsidized price before the end of their 24-month contract. Previously, the carrier allowed some subscribers to upgrade their phones at a subsidized price after 20 months. Shammo said Verizon expects subsidies to drop over time as competition in the smartphone market increases and as Verizon begins taking the CDMA chipsets out of some its smartphones as it moves to Voice over LTE service, which it will commercially launch in early 2014. 

LTE: The carrier had 5.9 million total LTE device activations in the quarter. The company also noted that 54 percent of its total data traffic now rides on its LTE network. Verizon said its LTE network now covers 287 million POPs, by far the largest in the United States, covering more than 95 percent of Verizon's current 3G network footprint. The carrier expects to cover its 3G footprint with LTE by the end of the second quarter. The company will turn on its AWS spectrum later this year to add extra LTE capacity, Shammo said.

Churn: Verizon's retail postpaid churn was 1.01 percent in the first quarter, up from 0.96 percent in the year-ago period. Total retail churn was 1.30 percent, up from 1.24 percent year-over-year.

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

Special Report: Wireless in the first quarter of 2013

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