Verizon Wireless reported a slowdown in Q2 customer growth, though a lessening impact from T-Mobile US
Continued strong results from at least one rival seemed to have impacted Verizon Wireless’ second-quarter results, though the carrier did surpass some expectations.
Verizon Wireless said it added just over 1 million direct connections during Q2, led by robust tablet sales and modest growth in more financially lucrative smartphone connections. However, continued struggles with direct prepaid customers, which counted 126,000 defections during the quarter, resulted in a 29.4% year-over-year drop in overall net connection growth during the quarter.
Verizon Wireless said it ended the first half of the year with 109.5 million direct connections on its network.
One upside from the strong tablet growth was an increase in customer loyalty, with Verizon Wireless reporting a .9% postpaid churn rate for Q2, and a 1.18% combined churn rate for its direct operations. Those numbers both improved compared with the .94% and 1.25%, respectively, posted last year.
Verizon Wireless’ management has repeatedly noted that lower recurring revenues from tablets are partially offset by increased loyalty from those customers as they are typically added to data share buckets and tend to keep customers on board for longer periods of time. The drop in customer churn also seems to jibe with comments from T-Mobile US that the carrier’s porting ratio with Verizon Wireless dipped slightly during the quarter.
The impact of tablets was also apparent in a 3.8% dip in average recurring revenue per account, which dropped from $159.73 during Q2 2014 to $153.73 this year. Verizon Wireless charges a much lower per-device fee for tablets to access shared data packages compared to smartphones, with the overall number of devices per account growing from 2.8 at mid-2014 to 2.92 this year.
Verizon Wireless management did note that customers signing up for its Edge device-financing program increased from a 39% take rate at the beginning of the year to 49% during Q2. The program trades a lower monthly service price for the customer making monthly payments on the full price of a device.
Financially, Verizon Wireless posted a 5.3% increase in operating revenue for the second quarter, growing from $21.5 billion last year to $22.6 billion this year. Operating expenses increased just 2.9% year-over-year, contributing to a 10.2% increase in segment operating income of $7.7 billion. Operating income margins increased from 32.5% last year to 34% this year, while earnings before interest, taxes, depreciation and amortization margins surged from 42.3% to 43.9%.
Verizon Wireless also reported just over $3.1 billion in capital expenditures for Q2, compared with just less than $2.8 billion last year. The carrier is in the midst of a robust network densification program that includes a healthy dose of small cells and distributed antenna systems, and had previously stated its small cell plans could account for up to $500 million in spending this year.
Verizon Wireless’ management explained the densification plans were underway in a number of large markets, including New York and Chicago, and that it was beginning to refarm some of its 1.9 GHz spectrum assets currently supporting CDMA-based 3G services for its LTE network.
T-Mobile US earlier this month said it added nearly 2.1 million connections to its network during the quarter, including just over 1 million “postpaid” connections, which were dominated by “phone” connections that accounted for 760,000 net additions. Branded prepaid net additions surged 75% year-over-year, with T-Mobile US posting 178,000 net additions during the last quarter.
AT&T is scheduled to report Q2 results later this week, with Sprint scheduled to post its latest quarterly results on Aug. 4.
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