Earnings reports

Verizon Likes Its Droids

Verizon Wireless may have started behind in the smartphone game, but it’s making up lost ground with its army of Droid devices.

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

sarahthomas1011 12/5/2012 | 4:29:05 PM
re: Verizon Likes Its Droids

Do we believe Killian that VZW isn't in a hurry to move to tiered pricing? Engadget tipster say it'll happen on July 29th. He more or less said they'll definitely do it for 4G, but what about 3G?

FredStein 12/5/2012 | 4:29:03 PM
re: Verizon Likes Its Droids

Tiered pricng on LTE makes sense. Data consumption doubles faster than 2x per yr. That comes to 4x before a 2yr contract completes.

Sarah, love your statistics. Can you do a side by side VZ to ATT; ARPU, subs, subs growth, churn, etc.. Ha - Add a column for CLRW - for grins.

sarahthomas1011 12/5/2012 | 4:29:02 PM
re: Verizon Likes Its Droids

Sounds like a great idea, Fred. Sprint reports on Wednesday, so we can throw them in the mix too. Stay tuned...

jdbower 12/5/2012 | 4:28:58 PM
re: Verizon Likes Its Droids

I'm curious why it's assumed that tiered pricing would preclude an unlimited plan?  I'd love for Verizon to go to a tiered plan as long as they do away with the silly tethering surcharge (data is data, yes most tethering users use more data but we occasional tetherers get hosed).  If unlimited LTE data is (to choose a random number) $70 a month I'd much rather have the option of a 2GB plan for $30.  Even with the current $30 all-you-can-eat plan my wife would consider a $5/100MB plan for basic smartphone use.

4Geo 12/5/2012 | 4:28:43 PM
re: Verizon Likes Its Droids

I believe that VZW will produce a tier for data.  They kinda have with the tethering charge on the Droid X.  It's a double edge sword.  Grandfather folks who exist. Then give a price break to the light and typical users (majority).  Then charge the smaller (numbers) of high data consumers who demand more data usage.  LTE will produce heavy data usage, and the costs for the backhaul improvements have to borne for that "Databahn".  Used to be that data speeds would mathematically limit how a device might practically limit itself.  VZW data speeds have been the same for some time.  AT&T has been improving speeds, so it's no wonder they jumped first, after the iPhone data explosion, along with speed advances in GSM.  Verizon is about to embark on a data curve, and they need to assert a charge structure that works in a scaleable way to meet scaleable demand.    With Smartphones at only 20% (which is disputed), and with the Droid effect scaling up quickly (undisputed), VZW has motivation to change to tiered pricing at or before the availability of LTE.  CDMA has been a 1:1 subscriber/connection use model.  GSM can have dual connections for a good percentage of 3G Smartphone users.

An interesting piece of stats for review.


It also appears to me, that by simply increasing backhaul capacity, increases data consumption.  Likely created by the "backpressure" for data ahead of the networks ability to serve it up, for the existing user base and use model. 

As a CFO, the timing of this has to be a gamble.  Too early, and you may lose ARPU numbers, and or impede growth to hesitation for new subs expecting unlimited use.  Subs haven't had to think about their actual consumption.   Too late, and you produce more GrandPa's. 

I believe it will be timed for Q3, and before the back-to-school data rush.  Mobile data for computers will wait for LTE to see that change.   They already have a 5G + 5c/MB built in throttle.

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