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FiOS thriving despite Verizon's preference for LTE

Fri, 07/22/2011 - 8:10am
Brian Santo

Verizon added 184,000 FiOS TV subscribers in the second quarter and 189,000 FiOS broadband customers. That brings its customer totals to 3.8 million and 4.5 million, respectively.

In contrast to AT&T, which reported a net loss of broadband subscribers yesterday, Verizon had a net gain, with FiOS broadband additions more than compensating for its loss in DSL subscribers; the company reported a net addition of 62,000 broadband customers.

With rising FiOS ARPU, Verizon announced that FiOS revenue grew to exceed $2 billion in the quarter.

Verizon's main broadband focus continues to be on the wireless side, however. It curtailed spending on FiOS sharply after its initial build-out and now is increasing spending on its LTE network. It spent a cumulative $8.9 billion on LTE in the first half of 2011; that compares to outlays of $7.6 billion in the first half of 2010.

Verizon Wireless' second-quarter earnings were bolstered by the iPhone despite adding fewer customers using the device than rival AT&T.

Separately, the company announced that Verizon Communications COO Lowell McAdam would step into CEO Ivan Seidenberg's post on Aug. 1, completing a succession plan that has been underway since last year.

McAdam was president and CEO of Verizon Wireless until September of last year, when he took his current post. Before joining Verizon in 2000, McAdam led PrimeCo Personal Communications and held an executive post at AirTouch Communications.

In his new post, McAdam will work to keep the company's wireless business ahead of AT&T and try to rein in declines on the company's wireline side. Seidenberg will remain chairman of the board of directors.

Overall in the second quarter, Verizon made $1.61 billion on sales of $27.5 billion, pulling slightly ahead of analysts' estimates.

Verizon Wireless added 2.3 million new iPhone customers in the second quarter, less than the 3.6 million new iPhone customers added by AT&T during the same quarter. In the first quarter of this year, Verizon added 2.2 million new iPhone customers despite only having the device on store shelves for seven weeks.

AT&T has moved aggressively to counteract the effect of losing its exclusive grip on the device, lowering the price of the iPhone 3GS to $50 last quarter to keep customers from buying the device at Verizon.

McAdam said in an earnings call with analysts that Verizon had expected Apple to come out with a new iPhone this summer; the company's decision to delay the launch of a new version of the device slackened demand as consumers decided to hold off on buying the iPhone until a new model hit the market.

He declined to state when the next iPhone would hit the market, saying only that it would be "sometime in the fall, and I think you'll see a significant jump there," referring to sales of the device.

"It's still going to take some time before the iPhone has a bigger impact on Verizon," says Frost & Sullivan analyst Ronald Gruia. "I think over time there should be a pickup in the iPhone activity at Verizon."

Despite the lack of an iPhone refresh, the device still had a positive effect. Verizon's postpaid churn dropped to just 0.89 percent, the lowest in three years. The company added 1.25 million net postpaid customers; 61,000 prepaid customers; and 890,000 data-only connections, including tablets and M2M devices.

Bernstein Research analyst Craig Moffet said in a research note that Verizon Wireless' subscriber gains were "breathtaking."

"Verizon's subscriber share gains, particularly in post-paid, were breathtaking," he said. Analysts had expected the company to add just 906,000 net postpaid subscribers.

Smartphones now comprise 36 percent of the company's postpaid subscribers, up from 32 percent at the end of the first quarter. Verizon also sold 1.2 million devices with LTE capabilities. The company currently offers nine LTE devices.

Verizon Wireless posted sales of $17.3 billion, boosted by a 22 percent rise in data revenues, which now comprise nearly 40 percent of the company's sales. Postpaid ARPU rose slightly to $54.12, and data ARPU rose 15 percent to $21.26.

"Overall, Verizon's results must be judged as very good… but that's what they were expected to be," Moffet said. "Given Verizon's very large valuation premium, the real question is whether very good is good enough."

Investors weighed in on Moffet's question in trading this morning after Verizon's financial results were released, sending the company's stock down more than 2.5 percent on the New York Stock Exchange.

Separately, Verizon began making Pandora available through FiOS earlier this week.

– Wireless Week's Maisie Ramsay contributed to this report

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