VZ iPhone Boosts Data, Shaves Margins in Q4

Verizon Wireless sold 7.7 million smartphones -- including over 4 million iPhones -- in the fourth quarter, helping to drive the operator's wireless data revenue up even as it cut into its margins.

The wireless business saw operating margins fall to 23.7 percent from 30 percent a year ago, as the operator's upfront subsidy costs for smartphones such as the iPhone grew. Analysts had been warning earlier this month that the costs could cut into the operator's wireless EBITDA margins. (See Verizon iPhone Sales Surge in Q4.)

Overall, the operator disappointed Wall Street with its fourth-quarter earnings as its adjusted earnings per share (EPS) of 52 cents missed analyst expectations by a penny. The operator posted a net loss for the fourth quarter thanks to pension costs. (See Verizon Posts Net Loss of $212M for Q4.)

Nonetheless, on the earnings call Tuesday morning, Verizon CFO Fran Shammo talked up wireless data revenues of $6.3 billion, up 19.2 percent, now representing 41.6 percent of $15.1 billion in service revenues.

Verizon added 1.5 million new retail wireless subscribers in the last quarter of year; 1.2 million of these were "postpaid" customers who sign on for a monthly contract rather than "pay as you go."

In addition to subsidy costs, keeping up with capacity for the surging iPhone sales is another thing that's costing Verizon. Shammo mentioned that Verizon is spending on adding 3G capacity for the Apple Inc. (Nasdaq: AAPL) device as well as expanding its Long Term Evolution (LTE) footprint, which is now standing at 195 markets in the U.S. (See Verizon Plots 5 New LTE Markets.)

Shammo said that -- despite the costs of these efforts -- the operator will keep overall capital expenditure at this year's levels. Shammo said in July 2011 that he expected capex for 2011 to track at about $16.5 billion. "I wouldn't expect to see anything different from what we've executed on in 2011," he added on today's call.

More LTE ahead
The operator is also expecting its LTE business to grow in 2012. It sold "over 2.4 million" 4G devices in the quarter and expects to have 24 LTE devices available in the first quarter of 2012, up from 18 now.

Shammo said that the operator is expecting to keep its "market-leading" LTE position in 2012. "We are targeted to have 4G coverage comparable to our 3G network by mid-2013," Shammo said. The operator had originally said it would hit that target by the end of 2013. (See Verizon: There's No Stopping Our LTE.)

In contrast, AT&T Inc. (NYSE: T) currently has 26 LTE markets available and is promoting a "blended 4G" strategy of LTE and fall-back to 14.4Mbit/s or 21Mbit/s High-Speed Packet Access-Plus (HSPA+) 3G. Sprint Corp. (NYSE: S) intends to launch its first four LTE markets by the middle of this year. (See AT&T Promises Superfast 'Blended 4G', Sprint Needs $3B to Fufill Its 'Network Vision' and New Year, New 4G: At a Glance.) — Dan Jones, Site Editor, Light Reading Mobile