Tablets up, smartphones and prepaid down for Verizon Wireless
Competition, smartphone saturation and consumer infatuation with tablet devices continues to alter Verizon Wireless’ quarterly results, which showed financial strain tied to slowing smartphone connections and increased tablet adoption.
The carrier said it had 377,000 direct net connection additions during the first quarter of this year, down more than 31% from the 549,000 connections posted for the same period in 2014. The latest growth metrics came in well below estimates of around 500,000 net additions.
The decline was attributed to Verizon Wireless’ prepaid business, which lost 188,000 connections during the most recent quarter. Verizon Wireless’ management noted that the prepaid defections were partially due to customers seeking lower-priced postpaid options at rivals.
Verizon did not appear to be concerned with the prepaid defections, with CFO Fran Shammo telling investors during a conference call that the carrier was not interested in chasing all customers with the lowest price point. Shammo also noted that Verizon Wireless’ wholesale business had a strong quarter, in particular noting its relationship with prepaid reseller Tracfone Wireless resulted in approximately 400,000 net customer additions for the quarter.
Smartphone growth was a mixed bag as the carrier said it managed to activate 621,000 LTE-enabled devices on its network during the quarter, but lost 3G-enabled smartphones that resulted in a total of 247,000 net smartphone connections. Customers activated 820,000 LTE-enabled tablets during the quarter, but the carrier reported a loss of 385,000 basic phones. At the end of the quarter, LTE-equipped devices accounted for 70% of postpaid connections, with that network handling about 86% of total data traffic.
Postpaid customer churn dipped year-over-year from 1.07% in 2014 to 1.03% this year, with smartphone-based churn reported at less than .9% for the first quarter.
Verizon Wireless reported that it had nearly 108.6 million direct connections on its network at the end of the first quarter, with postpaid connections spread across 35.5 million separate accounts. Each postpaid account generated $156.14 in average revenue per month, which was down from the $159.67 posted for the first quarter of 2014. That drop was attributed to the increased tablet mix, which customers are able to add to shared data accounts at a lower price than smartphones.
Boosted by a larger overall customer base, Verizon Wireless managed to post a 6.9% year-over-year increase in operating revenue to $22.3 billion for Q1. Operating expenses increased slightly more at 7.1% year-over-year, despite a 5.3% dip in capital expenditures.
Operating income for the quarter grew 6.7% year-over-year to $7.8 billion, with operating income margins remaining steady at 35%. Wireless earnings before interest, taxes, depreciation and amortization increased 6.6% to $10 billion for the quarter, while wireless EBITDA margin remained basically flat at 44.8%.
Wireless services accounted for nearly 70% of Verizon Communications’ $32 billion in total revenue for the first quarter, an increase from just under 68% during the first quarter of 2014. That number is set to increase as Verizon announced earlier this year plans to sell wireline properties in California, Florida and Texas to Frontier Communications for $10.5 billion. The proposed deal includes Verizon’s FiOS Internet and video customers, switched and special access lines, high-speed Internet service and long-distance voice accounts in the three states.
Q1 competitive moves
Verizon Wireless rivals also made sure to maintain competitive pressure during the latest quarter.
Sprint launched a promotion late in the quarter that offered to reimburse all customer costs related to switching to the operator. T-Mobile US quickly followed the move with a reimbursement offer of its own.
AT&T Mobility bolstered its Rollover plans during the quarter to further entice customers to its Next device financing program. AT&T previously released Q1 forecasts predicting around 400,000 postpaid net customer additions driven by tablet sales, which generate lower monthly recurring revenues when compared to smartphones. The carrier also said continuing integration issues with its Cricket subsidiary would impact margins for the first quarter, though lessen as the year progressed.
On the prepaid side, T-Mobile US launched a new unlimited offering for its MetroPCS brand that for $30 per month includes unlimited domestic voice calling, text messaging and data services, with the first 1 gigabyte offering HSPA-based speeds before being throttled down to GPRS/EDGE speeds. T-Mobile US also expanded its Data Stash program to its prepaid customer base.
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