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July 18, 2013
Verizon Communications Inc. intends to increase its wireless capex this year as it prepares to support a new 4G voice service and cater to a growing number of video-addicted subscribers on its LTE network.
Verizon CFO Fran Shammo revealed the updated capital expenditure predictions during the operator's second-quarter earnings call Thursday morning. Verizon recently announced that it had hit 500 markets and covered 99 percent of its 3G footprint with LTE, meaning that the additional spend will add in capacity rather than increase markets.
"We ... see an incredible jump [in usage] as people jump from 3G to 4G," Shammo explained. He said that a questioner on the call was "right on" when the analyst suggested that the switch to 4G causes about 1.8 times more data usage than on 3G.
He said wireless capex came in at US$2.3 billion for the second quarter and $4.3 billion for the first half of the year. "That's 8 percent higher than in 2012," Shammo said.
Total capex (fixed and wireless) hit $7.6 billion during the first half of the year and Verizon will spend more than that during the second half. The full year capex outlook for 2013 is now $16.4 billion to $16.6 billion, higher than the previous forecast of $16.2 billion.
Here are some of the metrics that are driving that spending:
59 percent of the operator's data traffic is now carried over the LTE network, up from 35 percent a year ago. And 33 percent of the operator's subscriber base is currently on the LTE network.
Verizon sold 3.1 million more 4G devices in this quarter than it did in the same quarter last year.
46 percent of the smartphones on the network and two-thirds of Internet devices -- including hotspots, routers and tablets -- are LTE-capable.
Spending now to support 4G data traffic increases is essential to sustaining Verizon's overall growth, Shammo intimated on the call. "We need to accelerate our network growth," Shammo said.
The company is already seeing much increased video growth. "The video consumption is increasing year-over-year and quarter-over-quarter," Shammo said.
It also needs to prepare for the launch of 4G voice services later this year. Voice-over-LTE (VoLTE) will bring new challenges for Verizon -- and all other major operators -- as it is deployed in the next few years.
"We will start testing and have our first [VoLTE] handset in the market sometime this year, with commercial launch in the first half of next year," Shammo said, reiterating previous statements.
This will be mean more work for Verizon, layering in separate AWS spectrum onto its existing 700MHz LTE network. "Now we will have to go back and fill in that capacity to make sure from a voice call perspective that it hands off," Shammo said.
What this means -- despite Verizon's 99 percent coverage of its 3G footprint -- is that the operator needs to go to markets and ensure that it has smooth hand-offs and a very consistent 4G IP signal everywhere so that users will be able to maintain a conversation, and not drop calls, as they move around. (See When is a 4G LTE Market Really Covered, Anyway?)
Despite this, Verizon is not desperate for more spectrum to support these efforts. "We are not under any spectrum pressure," Shammo said.
However, he added that, obviously, Verizon will "opportunistically" buy spectrum and participate in FCC auctions but isn't crunched for bandwidth yet. "We're in good shape for three to four years," he said.
— Dan Jones, Site Editor, Light Reading Mobile
Dan is to hats what Will.I.Am is to ridiculous eyewear. Fedora, trilby, tam-o-shanter -- all have graced the Jones pate during his career as the go-to purveyor of mobile essentials.
But hey, Dan is so much more than 4G maps and state-of-the-art headgear. Before joining the Light Reading team in 2002 he was an award-winning cult hit on Broadway (with four 'Toni' awards, two 'Emma' gongs and a 'Brian' to his name) with his one-man show, "Dan Sings the Show Tunes."
His perfectly crafted blogs, falling under the "Jonestown" banner, have been compared to the works of Chekhov. But only by Dan.
He lives in Brooklyn with cats.
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