Verizon Wireless kicked off the third quarter reporting season posting strong customer growth that came in just under expectations, but financial results that again set a high bar for rivals to match.
Verizon Wireless said it added 1.061 million total connections during the quarter, including 927,000 direct postpaid net additions and 134,000 direct prepaid net additions. Total growth was down sequentially from the 941,000 net additions posted during the second quarter and a significant drop from the more than 1.5 million customers the carrier added during the third quarter of 2012. Analysts were also expecting a bit more from Verizon Wireless, with forecasts of closer to one million net additions for the latest quarter.
Of its quarterly growth, Verizon Wireless reported that 88% of device activations were phones as opposed to mobile hotspots, wireless modems or wireless modules. Of the phones, 7.6 million were smartphones, of which 51% were iPhone activations, though Verizon management did note a supply constraint on devices that impacted Q3 sales. Apple had released its latest iPhone 5S and 5C models at the tail end of the third quarter.
For the first time in a long time, Verizon Wireless also posted an increase in customer churn, which could have also slowed growth. The carrier reported 1.28% retail customer churn for the quarter, which was up from the 1.23% posted during the second quarter of this year and significantly up from the 1.18% posted during the third quarter of 2012.
While growth came in a bit under expectations, Verizon Wireless did manage to push its total customer base to more than 101 million direct customers, with postpaid subscribers making up 95% of that total. That base includes nearly 35 million “retail postpaid accounts” that each count an average of 2.72 lines of service per account. Each of those accounts spent an average of $155.74 per month during the third quarter on service, which translates to $57.26 spent per line. That was up $1.33 year-over-year from the $55.93 spent on average per line during the third quarter of 2012.
That increase helped push total operating revenues for the quarter past the $20 billion mark, with the carrier posting $20.4 billion in total wireless revenues, which was a 7.2% year-over-year increase. Operating expense increased by a smaller margin resulting in operating income surging 13.9% to nearly $6.9 billion for the quarter. More importantly for investors, Verizon Wireless’ earnings before interest, taxes, depreciation and amortization margin ticked up from 50% during the third quarter of 2012 to 51.1% this year, which was just ahead of forecasts.
Verizon Wireless accounted for 67.3% of parent company Verizon Communications’ total revenues for the quarter, which was an increase from the 65.6% it accounted for during the third quarter of 2012. That growth bolstered Verizon’s deal last quarter to purchase Vodafone Group’s 45% stake in Verizon Wireless for $130 billion. Verizon’s management noted that the deal remained on track to close during the first quarter of next year.
Verizon also reported that it ended the latest quarter with 178,300 total employees, which was a loss of 5,100 employees from the beginning of the year.
While overall spending was kept in check, Verizon Wireless did report strong capital expenditure growth, which came in at $2.45 billion for the quarter. The result was its highest quarterly capex spend for the year to date and comes as the carrier is aggressively beginning to layer in LTE capacity support through its 1.7/2.1 GHz spectrum holdings. The carrier noted that during the third quarter 64% of total data traffic was running across its LTE network despite the fact that only 38% of its customer base were on LTE-enabled devices.
Verizon Communications management noted during a conference call that it was comfortable with its current spectrum position for the next three to four years, but that it was planning to participate in the government’s scheduled auction of 600 MHz spectrum licenses set to begin by the end of next year. Verizon’s participation, as well as that of AT&T, has been the subject of significant debate from smaller rivals that are looking to prevent the nation’s two largest carriers to participate in that auction free from any restrictions.
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