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Verizon: No Capex 'Blip' for LTE

Michelle Donegan
LR Mobile News Analysis
Michelle Donegan
10/26/2009

Despite an aggressive deployment plan for Long Term Evolution (LTE) in the U.S., Verizon Communications Inc. (NYSE: VZ) said today that the cost of rolling out the proto-4G mobile broadband network would not cause a spike in capital spending.

Verizon, which has one of the most ambitious LTE plans in the world, said on its third-quarter earnings call today that the next-gen network is on schedule. Verizon plans commercial LTE launches in 25 to 30 markets in 2010, and network coverage of 100 million POPs by the end of next year. And by the end of 2013, the operator aims to have national LTE coverage. (See Verizon Wants LTE All at Once and Verizon: This Is How We'll Do It.)

But the next-gen mobile broadband project won't unexpectedly bulge Verizon's capex budget, according to Verizon CFO John Killian. "I don't think you'll see any blip [in capex spending] whatsoever from the LTE program," said Killian. "We're spending some capital on LTE in 2009 and do not see that being incremental. [We're] absorbing that in the existing run rate."

Killian did not reveal exactly how much Verizon was spending on LTE equipment. And the revelation that the cost of the LTE network won't increase the carrier's capex budget perhaps indicates more about just how much Verizon spends each year than about how much a new wireless network will cost. Verizon estimates that its capital expenditure for 2009 will be in the range of $17.4 billion to $17.8 billion, and Killian said he thinks "we'll do better than this and come in below," that range. (See Will LTE Break the Bank?)

Verizon's unrequited iPhone love
Verizon also made its desire for the iPhone known on the call with media and analysts today. CEO Ivan Seidenberg said that whether Apple decides to make a CDMA version of the iPhone or whether Verizon will be able to sell the iconic device are decisions that are "exclusively in Apple Inc. (Nasdaq: AAPL)'s court. We're interested at any time in the future they want us for a partner." (See An LTE iPhone? Think 2012 (or Later) and Verizon & Google Build on Android.)

And when it comes to LTE devices, Verizon is still thinking far beyond handsets as the machine-to-machine (M2M) opportunity lurks. (See Verizon Wireless: Rise of the Machines and Verizon & Qualcomm Aim for M2M Bigtime.)

"When you look at 4G and M2M, data revenue opportunities will come in so many different places," said Seidenberg. "[This] pushes you to think about a broad array of devices."

The first devices to be used on Verizon's LTE network will be laptop data cards for "broadband access type of applications," according to Killian.

Profits drop in Q3
Perhaps some of the reason for Verizon's keenness to stress that the LTE rollout won't increase its capex is that the carrier today posted a drop in earnings in the third quarter and appeared eager to assure investors that costs would be contained. (See Verizon Reports Q3.)

Verizon reported third-quarter net income of $1.2 billion, or 41 cents per share, compared with $1.7 billion in the same period last year, or 59 cents per share. Third-quarter revenue was up nearly 10 percent, to $27.3 billion, compared with $24.7 billion in the year-ago quarter.

Verizon Wireless added 1.3 million net subscribers, bringing its total customer base to 89 million. Wireless revenues in the quarter were up 24.4 percent year-on-year to $15.8 billion, of which $4.1. billion was data service revenue. Service ARPU (average revenue per user) was down 2.2 percent to $51.04 per month, while data APRU increased 17.2 percent, year-on-year to $15.59 per month.

On the wireline side of the business, Verizon added 198,000 FiOS Internet customers in the quarter, bringing the total subscriber base to 3.3 million, and added 191,000 FiOS TV customers, extending its video sub base to 2.7 million.

— Michelle Donegan, European Editor, Unstrung

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