Verizon Trumpets Network Densification Plans

Verizon had an overall positive second quarter in which it saw its lowest churn in three years, a feat it attributed to the continued strength of its wireless network.

Verizon Communications Inc. (NYSE: VZ) has always, more or less, managed to stay above the fray in the US wireless market. While its competitors go back-and-forth on wireless promotions and new plans, Verizon tends to be slow to respond -- if at all -- citing its network superiority as its differentiator. (See Verizon's 4G Strength Keeps It Above the Fray.)

That held true in the second quarter of 2015. While Verizon brought in only 1.1 million net retail postpaid customers in the quarter, down from 1.4 million this time last year, it reported its lowest retail postpaid churn of the past three years at .90%. CFO Fran Shammo said low churn rate suggests its network is still keeping customers around for its quality, consistency and breadth across the US. (See Verizon Posts Q2 Profit of $4.23B.)

"The number one reason a customer leaves is quality of network; price is number two," he said on today's call. "The quality of the network is still overwhelmingly more important than the cost."

Verizon spent big in the first half of the year to support its LTE network, which Shammo said has seen usage double in the past year with 87% of its traffic now on LTE. The carrier invested $18 billion in spectrum licenses and spent $4 billion to acquire AOL, a deal it closed last month and plans to put to use in its mobile first, over-the-top video service in "late summer." (See Hey Big Spenders! AT&T, Dish & VZ Splash Cash on Spectrum and Verizon Closes AOL Acquisition.)

To support its upcoming video launch and continued growth on its LTE network, Shammo said that Verizon is continuing with the network densification plan it laid out after the last AWS auction, including small cells, distributed antenna systems (DAS) and other in-building systems, for which deployment is well underway in New York City and downtown Chicago. He said that Verizon doesn't have a great need for more low-band spectrum, but will consider competing in the upcoming AWS auction when it hears the rules for it. (See Verizon Scales Up Small Cells, AT&T Cuts Back and Verizon Allocating $500M to Small Cells.)

The operator, which has been less vocal about SDN and NFV than competitor AT&T Inc. (NYSE: T), is "well into SDN," Shammo said, noting that LTE itself is a "software-developed network." He also cited C-RAN as a potential way to bring efficiency to the network and noted that Verizon will be involved with the 5G standards process. (See Verizon: Telecom Needs to Solve SDN Problem, Verizon Builds Key Vendors Into SDN Strategy and Lines Get Drawn in Road to 5G.)

"Spectrum is important, but is not the only tool in the toolbox," Shammo said.

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Verizon lost both featurephone and prepaid customers in the quarter, but it offset the losses with gains in other connected devices. New revenue streams from Internet of Things (IoT) and telematics totaled around $165 million in the second quarter and $320 million in the year to date. Shammo called out the transportation, healthcare and energy industries in particular as presenting new opportunities and said the carrier is developing business models around IoT to monetize its network. (See Verizon Focuses on Cashing In on LTE.)

Even more than the IoT, however, Verizon's growth is still coming from tablets. It added 852,000 tablets in the quarter, compared to only 321,000 phones, ending the quarter with 9.6 million postpaid tablets.

In total, the carrier counted 109.5 million retail connections and 103.7 prepaid connections at the end of the second quarter. Nearly three-quarters of its customer base is on LTE phones.

Shammo said Verizon's $80 10GB plan was very successful for the carrier and its customer retention efforts. He could see the carrier moving entirely to installment plans. "It'd be much easier to sell one product, so simplicity is important to us," he said on the call, adding that the market is moving it there. (See T-Mobile Gives More Data to Families.)

Overall for the quarter, Verizon posted a profit of $4.23 billion, or $1.04 per share, up slightly from the year ago profit of $4.21 billion, or $1.01 per share. Its revenue rose 2.4% to $32.22 billion. On the wireless front, revenues came in at $22.6 billion, up 5.3% over last year.

The carrier's stock was down 2.94%, or 1.41 points, to $46.69 after its earnings call Tuesday.

— Sarah Thomas, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editorial Operations Director, Light Reading

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Ariella 7/22/2015 | 1:29:48 PM
Re: Tablet sales @Dan are those tablets considered of comparable quality or an example of "you get what you pay for?"
DanJones 7/22/2015 | 11:39:28 AM
Re: Tablet sales Verizon also sells their own brand LTE tablets that are cheaper.
MordyK 7/22/2015 | 10:59:26 AM
Re: premium network cost I wonder how much of the "superior network" recognition is perception and what of it is fact. As more carriers improve thier networks, I see their quality reaching or exceeding Verizon's, and when customers catch on Verizon will be on the back foot.

That said they do have one of the most enviable low-band spectrum positions, which does give them a bi of a leg up.
Mitch Wagner 7/22/2015 | 10:13:05 AM
Re: Tablet sales I love my iPad mini. I use it for hours every day. And, like Tim Cook, I'm optimistic about the future of iPads. 

But for now, I'd have to stand by my assertion that Apple has not been successful at iPads. They were hugely successful -- at first. But Steve Jobs predicted they'd be mainstream products. That most people would use iPads, in preference to PCs. And that just hasn't happen. 

In retrospect, the reason for that not happening is obvious: With phones getting bigger and smarter, and laptops getting thinner and -- in many cases -- cheaper -- tablets have been squeezed in the middle. They are not necessary devices for most people. They are a niche market. 

This may change. Maybe Apple will find a way to make tablets relevant to most people. But I don't think that'll happen. 

I think what will happen is we'll start to see more convertible tablets, like the Surface, with optional keyboards. Tablets will get smaller and bigger. Notebooks will get smaller and bigger. And eventually the distinctions will blur -- there'll just be a smooth gradient of products running from phones to small tablets to larger tablets to notebooks. 
Sarah Thomas 7/22/2015 | 8:55:09 AM
Re: Tablet sales I think Verizon, like a lot of the carriers, has had a lot of tablet offers and promos that made it attractive to buy LTE versions. I would be curious to hear the breakdown between iPads, Android and other tablets.

Not sure it's fair to say Apple "can't succeed" at tablets. The iPad has been very successful and category defining, even if sales are slowing. We'll see what it has up its sleeve with the next software refresh.
Sarah Thomas 7/22/2015 | 8:53:05 AM
Re: premium network cost Wow, that's a pretty bad experience in your area, Keene. Verizon will be deploying the low-band spectrum it got in the last auction, which should hopefully help there. It may be the case that it really does need more, but it probably isn't willing to spend more cash on it unless it can get a deal.
Sarah Thomas 7/22/2015 | 8:52:02 AM
Re: premium network cost The AOL deal was all about content, not speeds. You'll see it put to use here soon when Verizon launches its OTT mobile video product. Not sure the deal was worth the price it paid, but we'll find out.
steve q 7/21/2015 | 9:54:57 PM
Re: premium network cost I just can't find a reasonable answer to the aol deal for the 4g lte. You have customer looking for faster interet service. And fios is the key to help customers that have issues with the old copper plant. And the WiFi service is better on the fios network and cost to the customer is the same with no limit to the user's.
Mitch Wagner 7/21/2015 | 8:58:12 PM
Tablet sales Given that tablet sales are so strong for Verizon given how awful they are for Apple. Why is Verizon so successful here where even Apple can't succeed?
Keene 7/21/2015 | 1:50:06 PM
Re: premium network cost VZ really needs low band LTE for its rural areas as it provides greater coverage per tower site and has better ground clutter penetration.  VZ gave me a deal I could not refuse to keep me as a customer including and essentially free new handset.  But I keep LTE voice turned off because LTE build-out is poor in my rural area and I use a legacy mobile booster to provide usable 3G, 2G & 1X voice service in what are significant deadspots in my travels.  The few five band boosters that handle LTE bands do not have as much gain as the grandfathered 2 band boosters and thus fail to provide good service in my area.

LTE data is great when you are within range of those equipped towers.  And in more urban areas LTE voice should be good too.  But until cellular coverage truly becomes universal, it will remain somewhat meaningless for a rural chunk of the US population.

I have no cell service at my home and had to connect a Femtocell to my wired Internet service which miraculously is fiber (FTTH).
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