Verizon Likes Its Droids
Its second-quarter earnings, marked by cost-cutting and losses of nearly $200 million, found redemption in smartphone and data growth. (See Verizon Reports Q2 and Verizon Wireline Profits All About the Job Cuts.)
The wireless division of Verizon Communications Inc. (NYSE: VZ)'s revenue grew 3.4 percent year-on-year to $16 billion in the quarter, more than competitor AT&T Inc. (NYSE: T), which reported yesterday. VZW added 1.4 million new subscribers in the quarter (slightly less than AT&T), bringing its total to 92.1 million. (See AT&T's Q2 iBoost.)
CFO John Killian said the carrier will continue to take advantage of the growing smartphone category with multiple operating systems and handset designs, but -- as in previous quarters -- it is clear it's betting most heavily on Android. Killian admitted that VZW’s smartphone portfolio lagged its competitors until the Droid franchise came about. (See Smartphone Data Makes Verizon Look Smart.)
Verizon Wireless unveiled two new Droid devices in the second quarter, including last month’s well received Motorola Inc. (NYSE: MOT) Droid X and the High Tech Computer Corp. (HTC) (Taiwan: 2498) Droid Incredible. Killian said that both these devices have sold well and elicited terrific customer feedback. (See Motorola Brings More Droids to VZW .)
“We’ve solved the problem with the Droid franchise where we were a little behind on the smartphone lineup,” Killian said on a call with investors today, adding that the margin is doing well, but he’d love to see it move to around 3 to 4 percent as it works to close the gap on AT&T.
The Droid lineup is performing so well that Verizon has had trouble keeping them in stock, Killian said, but he added that there isn’t a supply problem, just some issues around delays in fulfillment.
As a result of its postpaid smartphone strategy, Killian said, increased data penetration is driving revenue growth here, and the wireless business is really “firing on all cylinders.” Retail service average monthly revenue per user grew 0.9 percent from the previous year to $51.56; and retail data ARPU increased to $17.85, up 19.4 percent year-over-year.
Even with its heavy focus on postpaid service and smartphones, only 20 percent of VZW’s wireless customer base has smartphones. Killian said this represents an opportunity to increase that number to 80 percent or more, as well as drive the smartphone and video experience once Long Term Evolution (LTE) is deployed later this year.
Killian appears to be so content with Verizon Wireless’s smartphone performance today that he's not eager to make the transition to tiered pricing as AT&T has done. He said that when Verizon moves to an LTE world with LTE pricing, it will look very hard at tiered pricing, but has no plans to move quickly on it.
“We feel really good about our device portfolio with great momentum going forward. Looking ahead, particularly with the network launch of LTE later this year, we think our network advantage will be even more differentiated.”
— Sarah Reedy, Senior Reporter, Light Reading Mobile