Verizon Wireless sees steep year-over-year drop in connection growth, which analysts attribute to aggressive moves from T-Mobile and Sprint
Verizon Communications’ once metronomic wireless operating performance looks to be skipping some beats with its most recent quarterly results sounding a sour note for the telecom giant.
The carrier posted 525,000 net direct connection additions for the third quarter, which was less than half the 1.2 million the carrier posted for the same period last year. All of that decline was on the back of Verizon Wireless’ postpaid business, which managed to add just 442,000 connections in Q3, which was well below predictions and impacted by net “phone” losses.
By contrast, the carrier’s branded prepaid service turned around what had been a series of quarterly losses in posting 83,000 net connection additions during the latest quarter.
The steep decline in customer growth appears to have come at the hands of smaller rivals T-Mobile US and Sprint, which during the quarter introduced aggressive “unlimited” service offerings backed by heavy promotions. Verizon has been adamant it will not match those service efforts.
Sprint earlier this week released preliminary quarterly numbers of 740,000 net connection additions during the quarter, including 344,000 postpaid net additions, 823,000 net connection additions through its wholesale and affiliates, and the loss of 427,000 prepaid connections. Of its postpaid growth, Sprint said phone connections counted for 347,000 net additions, which was double the previous quarter and more than five-times what it posted for the same quarter last year.
T-Mobile US late last month said it had gained more than 750,000 branded postpaid net phone additions and 650,000 net prepaid customer additions just prior to the quarter ending. More directly, T-Mobile US said it had snared nearly 400,000 customers from AT&T Mobility, nearly 300,000 customers from Sprint and more than 250,000 customers from Verizon Wireless by mid-September.
Verizon Wireless can continue to at least maintain the claim to a substantially larger overall connection base, noting it ended the latest quarter with 113.7 million branded connections on its network, compared with 110.8 million at the same point last year.
Impacting Verizon Wireless’ overall growth – and perhaps validating competitive concerns – was an uptick in customer churn, which increased from 1.21% last year to 1.28% this year. Analysts noted the increase was driven by tablet devices, which have become a dwindling focus for the carrier.
Average revenue per account was mixed, with traditional ARPA excluding device payments dropping 4.9% year-over-year to $144.94, though increasing 3.2% when taking into account monthly device payments to $169.49. Verizon Wireless reported a slight drop in the total number of accounts on its network in Q3 compared to the same time last year, but an increase in the number of connections per account from 2.94 last year to 3.05 connections this year.
The financial challenges were evident in the carrier’s wireless service revenue, which fell 3.9% year-over-year to $22.1 billion for Q3. Wireless services made up 71.5% of Verizon Communications’ overall revenue for the quarter, compared with 69.3% last year.
Verizon Wireless did manage to trim spending to go along with the reduction in revenue, with total operating expenses clipped 5.8% year-over-year to $14.5 billion. Those numbers included a dip in network-based capital expenses, which dropped 5.1% to just under $2.8 billion for the quarter.
Bottom line results for the wireless operations included basically flat operating income at $7.6 billion for the quarter; an increase in operating income margin from 33.3% last year to 34.6% this year; flat segment earnings before interest, taxes, depreciation and amortization at $9.9 billion; and an increase in EBITDA margins from 43.2% to 44.9%.
“Results are weaker than expected, with wireless customer additions and wireless EBITDA margins both well below our estimates and consensus,” noted Wells Fargo senior analyst Jennifer Fritzsche, in a research note. “We expect this indicates [Verizon] felt competitive pressure from aggressive promotions at [T-Mobile US] and [Sprint] in Q3.”
Investors appeared depressed by the results, with the telecom operator’s stock (VZ) trading down 2.5% in early Thursday activity.
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