Verizon Focuses on Cashing In on LTE
Verizon's postpaid subscriber growth missed analyst expectations in the first quarter and it lost both prepaid and 3G customers, but the self-described "premium" carrier is instead focused on monetizing the more valuable LTE data users it does have.
Verizon Communications Inc. (NYSE: VZ) reported total wireless revenues of $22.3 billion in the first quarter, an increase of 6.9% over last year, but service revenues declined slightly, 0.4%, to $17.9 billion, while equipment revenues increased $1.5 billion as more of its customers signed on to its Edge equipment installment plans. (See Verizon Reports Q1 Revenues of $31.98B.)
The carrier added 621,000 4G smartphones in the quarter, but lost 374,000 3G smartphone customers, bringing its overall smartphone growth to 247,000. It also added 820,000 4G tablets and lost 385,000 basic phones and 188,000 prepaid devices in the quarter.
Overall, Verizon brought in 565,000 retail postpaid additions, a 4.4% year-over-year increase, but fewer than analysts were expecting.
On the upside, LTE devices now make up about 70% of Verizon's retail postpaid connections base, up from 49% a year ago, and 86% of total wireless data traffic is now on the 4G network. Data usage is also on the upswing -- by 54% for those on More Everything plans.
"This is all pointing to where the future growth of the business comes from," Verizon CFO Fran Shammo said on the call. "There aren't many businesses were consumers want to consume more and more."
The entire industry is experience these shifting dynamics -- from 3G to 4G, services to equipment and ever-increasing data usage -- but Verizon is feeling it the most as it has really pushed its Edge equipment installation plans and hasn't given in as much to the customer retention and acquisition promotions of its competitors.
That's why the carrier is now intent on finding more ways to monetize its LTE data traffic. Verizon Chairman and CEO Lowell McAdam talked up some of its plans Tuesday, including an increased focus on the Internet of Things, the upcoming launch of Verizon Vehicle and several planned video offers. (See Verizon Vehicle Races to Catch Up to OnStar.)
The biggest new service is via its mobile-first, over-the-top video service that he says will go live this summer. McAdam has been teasing the service for a while and has already signed up some early content partners, primarily sports-focused, including ACC Digital Network, Campus Insiders, CBS Sports, ESPN and 120 Sports. Shammo added that the focus of the service is simply on getting its subscribers to consume more content over LTE. (See Verizon Scores New OTT Content Deals and Verizon Likes OTT Video Prospects.)
"Consumers are willing to consume content on mobile devices, which is why we're so optimistic about IoT and over-the-top mobile video," the CFO said. Verizon's looking at premium, subscription, pay-per-view, ad models and sponsored data to monetize its OTT service.
Verizon's mobile video offering won't, however, necessarily tie in with its planned online TV bundle, Shammo advised, stressing that they are two distinct systems. (See Verizon Crafting OTT Business Models.)
As for its new slimmed-down pay-TV bundles, Shammo wouldn't comment on the backlash from its content providers, only noting that it's all about consumer choice and is permissible under its current contracts. (See Verizon Skinnies Down With FiOS and Verizon, Sony Primp for OTT Debuts.)
"If you look at TV bundles today, most people only on average watch 17 channels," he said. "This gives them what they want on a choice basis. We believe we're able to offer these packages under our current contract."
— Sarah Thomas, , Editorial Operations Director, Light Reading