It appears the recent pricing moves by Verizon Wireless were indeed caused by competitive pressures as the carrier announced slowing growth and increased churn.
Verizon Wireless reported that it added 549,000 branded net customer additions during the first quarter, including 539,000 customers to its postpaid and 10,000 customers to its prepaid service. Those results were well below the 720,000 direct net additions posted during the first quarter of last year and its lowest quarterly growth total for several years. However, customer additions were in line with analysts’ expectations.
Verizon Wireless ended the first quarter with 103.3 million branded connections on its network, which was 4.4 million more than at the end of the first quarter last year.
Verizon Wireless rival AT&T Mobility announced earlier this week that it added more than one million connections to its network during the first quarter, which included 625,000 net postpaid customer additions. Verizon Wireless appeared to have finally capitulated to the market’s growing price war earlier this year when it began cutting per-line pricing on its More Everything rate plans.
Impacting growth was an increase in customer churn, which came in at 1.37% for the first quarter of this year, compared with a 1.3% posted last year. The 1.37% churn rate was also the highest posted by the carrier for several years.
Smartphones continue to be the biggest sales driver for the carrier, with 90.1% of postpaid activations coming from feature-packed devices, and 72.3% of its postpaid customer base using a smartphone at the end of the first quarter.
The continued strong adoption of revenue-rich smartphones was evident in average revenue per account, which increased $9.40 year-over-year to $159.67 during the first quarter of this year. Verizon Wireless also reported that the number of connections on each account had increased from 2.67 during the first quarter of 2013 to 2.77 connections this year. Those results show that average revenue per connection increased from $56.28 last year to $57.64 this year.
That per-account increase in revenue along with a larger customer base resulted in a 6.9% increase in wireless operating revenues for the first quarter to $20.9 billion. However, revenues were down sequentially from the $21.1 billion reported during the fourth quarter of last year. Verizon Wireless’ capital expenditures increased more than $500 million year-over-year to $2.554 billion during the first quarter, though capex did dip sequentially from the $2.7 billion spent during the fourth quarter of last year.
Operating expenses were up a smaller 3.5% year-over-year, helping to push operating income from $6.4 billion in 2013 to $7.3 billion this year. For the first time, Verizon Communications was able to capture all of the income from its wireless operations following the closing on the acquisition of Vodafone’s 45% stake in Verizon Wireless earlier this year for $130 billion.
Operating income margins also improved from 32.9% to 35%, while segment earnings before interest, taxes, depreciation and amortization margins increased from 50.4% to 52.1%. Verizon noted that its Edge device financing model had little impact on ARPA or EBITDA margins during the first quarter, but noted that the offering could “have a greater impact on service revenue growth in subsequent quarters, as service revenues shift to equipment revenues.”
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