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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Sarah Thomas 7/21/2015 | 11:21:36 AM
premium network cost I'm not seeing much evidence of improvements in Chicago. I have a lot of issues with Verizon, although I must be in the minority as it does appear to be able to hold on to its superior network reputation. Every ntework is improving though. How long can it charge a premium for this?
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