Verizon Wireless was the first domestic carrier to lay out what the second quarter held for wireless operators as it reported financial and operational results showing a continued slowdown in customer additions, but an improving financial position.
The nation’s largest wireless operator reported a 10.6% year-over-year drop in direct customer additions for the quarter, falling from just over 1.3 million in 2011 to just under 1.2 million customer additions this year. The most recent results showed a growing dependence on prepaid subscribers as that segment increased from 61,000 net additions last year to 290,000 net additions this year. Conversely, postpaid net additions dropped from 1.257 million customers last year to 888,000 subscribers this year.
The prepaid growth could also have been tied to recent rate plan changes produced by the carrier.
While direct growth was down, the results were in line with analyst estimates and likely indicate that most domestic operators are also in for customer growth results unlikely to match previous years.
Despite the slowing growth, Verizon Wireless did note that customer churn dropped year-over-year from 1.22% in 2011 to 1.11% this year, with postpaid churn falling from .89% to .84% over the same time frame.
While customer growth slowed, what those customers were paying each month surged from $52.49 during the second quarter of 2011 to $54.29 this year. Much of that growth was attributed to data services, which on the postpaid side increased more than 15% to $24.53 during the second quarter. Data services accounted for 43.6% of Verizon Wireless’ total revenues for the quarter and helped grow total revenues by 7.4% year-over-year to nearly $18.6 billion for the quarter.
Verizon Wireless noted that mobile Internet-based data services witnessed a 32.3% increase, while revenues driven by messaging services, which are also included in its “data” services, posted just a 4.2% increase. This shows that true mobile data services are beginning to become the driver for data growth ahead of legacy messaging services. That impact is only expected to accelerate as the carrier recently unveiled shared data plans that analysts predict will help bolster the carrier’s bottom line.
As for the makeup of its customer base, Verizon Wireless noted that smartphone penetration increased 13.8% year-over-year to 50% at the end of the second quarter. The carrier reported selling 5.9 million smartphones during the quarter, with 73% of postpaid net additions selecting the more powerful devices. The carrier also managed to sell 3.2 million devices compatible with its LTE network during the quarter, ending the first half of the year with 10.9 million LTE-enabled devices on its network.
Operating expenses increased just 2.1% during the quarter, which resulted in 21.8% increase in operating income to $5.7 billion. One segment that helped reduce costs was a drop in capital expenditures, which dropped 23.2% year-over-year to just over $2 billion for the quarter. This decrease was not unexpected as Verizon Wireless was throwing a significant amount of money at rapidly expanding its LTE network last year, an exercise that has slowed a bit this year.
Verizon Wireless is also expected to see additional cost savings this year as it moves forward with plans to shutter some domestic call centers. Verizon Wireless’ parent company, Verizon Communications, is also looking to cut costs for its slowing wireline division having announced plans to cut 1,700 jobs.
Just how successful Verizon Wireless’ quarter was will play out over the coming days as rivals begin announcing second quarter results.
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