Verizon Communications released fourth quarter financial results for its majority-owned subsidiary Verizon Wireless that continues to show the operator does not operate under the same rules as its rivals. While its nationwide competitors continue to adjust rate plans and offerings in an attempt to find areas of growth, Verizon Wireless continues to attract new customers willing to pay a premium for what is perceived to be a superior customer experience.
As was previously reported, Verizon Wireless added 1.653 million direct customer additions during the final three months of 2013, dominated by the carrier’s high-margin postpaid services that contributed 1.573 million net customer additions for the quarter. The results did come up quite a bit short of the more than 2.2 million direct customer additions Verizon Wireless posted during the fourth quarter of 2012, but analysts expect the results to lead the market.
More importantly for the financial community, operating income margins increased from 24% to 29.5% year-over-year, while wireless service earnings before interest, taxes, depreciation and amortization margins climbed from 41.4% in 2012 to 47% during the final three months of last year. Analysts at Cowen & Co. noted the improvement was helped by Verizon Wireless pushing out its device upgrade policy to 24 months, thus lessening the impact of device subsidies.
While many of its rivals have been showing significant results from recent device financing options, or altering plans that perhaps have not been seeing such success, Verizon Wireless continues to pay only lip service to the market. Many have noted the expense associated with Verizon Wireless’ Edge program, which while offering customers the ability to parse out payments on a device and partake in an early upgrade program, does not reduce the cost of wireless services tied to the program.
During its fourth quarter conference call, Verizon CFO Fran Shammo seemed to indicate that despite the differences between Edge and other offerings, Verizon Wireless continued to show strong customer growth and revenue gains and thus had little reason at this point to change its strategy.
“Look on the Edge program as I said earlier we will respond where we think we need to respond,” Shammo explained. “I’m not going to get into what others have done between Edge and subsidy. I mean we had a very successful fourth quarter and what we launched in the marketplace they were receptive to that. We ran a lot of promotions in the fourth quarter and it drove a lot of growth to our business and look, I mean again we will continue to do what we do best, which is we add customers and we are profitable.”
Analysts seemed to agree with the assessment, noting that while some rivals have been able to show results from their initiatives, Verizon Wireless has been able to turn its results into a strong, and immediate financial return.
“We believe the superior performance in both subscriber flow share and margins demonstrates the company’s ability to profitably grow its market share just as others struggle to achieve the same goal,” noted Canaccord Genuity analyst Greg Miller, in a research note. “Although the successful ‘Un-carrier’ strategy by T-Mobile will likely spark some level of competitive response by others (or the perception of it), we believe Verizon could pick and choose a selection of tactical tools (certain segments, certain geographic markets) to highly selectively respond to such reactions without impacting its wireless margins, in our view.”
With T-Mobile US having already announced limited fourth quarter results showing continued robust growth, pressure seems to be increasing on AT&T Mobility and Sprint. Wells Fargo Securities had previously said it expects AT&T Mobility to post around 500,000 net postpaid customer additions for the quarter, with Sprint expected to post a loss of more than 400,000 postpaid customers for the final three months of the year.
Verizon Wireless also continues to be an increasingly important revenue driver for Verizon, with wireless revenues growing $5.2 billion last year to $81 billion, or about two-thirds of Verizon’s total revenues for the year. This reliance could help soften the financial blow of Verizon’s $130 billion acquisition of Vodafone’s 45% stake in Verizon Wireless, which is set to close next month.
Other positives from the quarter include the continuation of LTE smartphone adoption, with Verizon Wireless reporting 1.4 million new LTE smartphone customer added during the fourth quarter. Much of that growth came from customer upgrades, with Verizon Wireless’ total “phone” net additions making up roughly half of the carrier’s total net additions for the quarter. The remaining balance included 675,000 “Internet devices” with a vast majority of those coming from tablet devices.
For the full year, Verizon Wireless added 4.1 million net postpaid subscribers that included 4.2 million LTE smartphones. (The difference is due to the loss of “basic” and 3G smartphone connections on its network.) The carrier also added 1.8 million net Internet devices, with 1.5 million of that coming from tablets, and 360,000 net customers from other devices that Verizon Wireless said were primarily from its Home Phone Connect offering.
At the end of 2013, Verizon Wireless claimed 44% of its postpaid connections were from LTE-equipped devices, with those connections accounting for 69% of the carrier’s total data traffic. That discrepancy is in part the reason for Verizon Wireless frantically throwing its 1.7/2.1 GHz spectrum holdings to support its LTE services, which in some markets has capped out the 20-megahertz of spectrum in the 700 MHz band initially used to launch services.
More color on just how competition is shaping up across the wireless space will come next week when AT&T Mobility posts its Q4 results. As most already expect Sprint to be a net loser on the postpaid side, AT&T Mobility’s ability to maintain its position in that financially lucrative space could set the table for how carriers approach 2014.
Bored? Why not follow me on Twitter?
