Verizon Wireless reported mixed results, remains cagey on 600 MHz auction plans
Verizon Wireless posted third quarter financial and operating results showing relative financial stability and continued customer growth challenges.
The carrier said it added 1.2 million direct net connections during the latest quarter, which was down more than 20% from the same quarter last year. Verizon Wireless’ postpaid performance suffered a 15% year-over-year drop, while it continues to lose the path in terms of prepaid performance with direct net additions dropping from just 9,000 customers last year to a loss of 80,000 prepaid customers this year.
Tablets remained the growth engine for the carrier’s postpaid sales, with the device segment accounting for 818,000 net connection additions during the quarter. Traditional smartphones accounted for 694,000 net additions, though defections in basic phones muted the segments overall growth. Verizon Wireless continues to not report results from wholesale or connected devices.
The slowing customer growth continues a year-long trend, with Verizon Wireless’ retail business now nearly 26% behind its 2014 growth rate through the first nine months of the year. The carrier said it ended the third quarter with 110.8 million direct connections on its network, an increase of 4.3% compared to last year, with nearly 95% of that base on postpaid plans.
The slowdown in quarterly growth was connected to fewer gross customer additions, as customer retention improved year over year. Verizon Wireless reported postpaid customer churn dipped from 1% in 2014 to just .93% this year, while total retail churn dropped from 1.29% to 1.21%.
Verizon Wireless is the first of the domestic nationwide operators to release full quarterly results, though rivals have already hinted at stronger customer growth. AT&T said it expects to post 2 million net additions across its mobile operations when it posts results later this week, including positive net additions across postpaid, prepaid, connected devices and reseller operations. T-Mobile US said it gained 2.1 million net additions during the quarter, including at least 760,000 postpaid phone net additions and around 1 million total phone net additions.
Financially, Verizon Wireless said consumer spending dipped 5.5% year-over-year, with average revenue per postpaid account falling to $152.38 per month. Each of those accounts also saw the number of connections increase from 2.82 last year to 2.94 this year, indicating a steeper drop in average revenue per connection.
That per-account dip was more than offset by the larger connection base, with total operating revenues increasing 5.4% to $23 billion for the quarter. That growth was on the back of equipment sales, which surged 73.1% year over year on the account of Verizon Wireless moving away from device subsidies and requiring new customers to pay full price for their devices. Verizon Wireless noted customers selecting device installment payments increased from 49% in Q2 to 58% in Q3, with expectations of about 70% in Q4.
Verizon Communications management continues to remain averse towards device leasing programs recently launched by some rivals, citing a risk of residuals impacting its balance sheet and growing smartphone penetration in China where it claims many of the refurbished devices end up.
Expenses increased a smaller percentage, hitting $15.3 billion for the quarter, helping to push a 10.3% increase in operating income to $7.7 billion.
Verizon Wireless’ spending also included a strong bump in capital expenses, which increased from $2.5 billion during the third quarter last year to $2.9 billion this year. Through the first nine months of the year, capex has increased more than 8% from $7.8 billion in 2014 to nearly $8.5 billion this year. Verizon Wireless noted work on network densification plans, which include small cells and distributed antenna systems, continue to improve network capacity and are laying the groundwork for the carrier’s recently announced “5G” plans.
600 MHz auction plans remain in limbo
In a conference call with investors, Verizon CFO Fran Shammo continued to downplay the company’s potential participation in the Federal Communications Commission’s 600 MHz incentive auction process, explaining the 600 MHz spectrum up for bid was perhaps not a good fit for the carrier’s current low-band 700 MHz spectrum that is the base for its LTE network. Instead, Shammo noted higher-band spectrum in the 1.7/2.1 GHz frequencies were of potentially greater interest to the carrier.
The commentary had some analysts angling that instead of participating in the 600 MHz auction proceedings, Verizon could make a play for AWS-3 spectrum currently held by Dish Network or spectrum assets returned by Dish spectrum partners to the FCC and expected to be re-auctioned.
Sprint recently announced it would not participate in the 600 MHz auction proceedings, citing its already robust spectrum position. To this point, only AT&T and T-Mobile US among the nationwide operators have thrown significant support behind the rapidly approaching spectrum auction.
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