The second quarter is shaping up as a one-horse affair as Verizon Wireless appears set to take substantial market share away from its competitors and move ever closer to its larger rival Cingular Wireless L.L.C.
Verizon Wireless, which ruled supreme as the industry’s big dog until Cingular completed its acquisition of AT&T Wireless Services Inc. last fall, said it added an industry-record 1.9 million subscribers during the second quarter and ended the first half of the year with 47.4 million subscribers. The quarterly growth was well ahead of analysts’ estimates of around 1.5 million net additions, and nearly 73 percent more than the 1.1 million net customer additions posted by Cingular-which ended the quarter with 51.6 million subscribers.
Verizon Wireless’ strong customer growth was boosted by increased customer loyalty; the carrier’s customer churn dropped from 1.4 percent during the second quarter of 2004 to 1.2 percent this year. Verizon Wireless added that postpaid customer churn was at 1 percent for the quarter.
But not everything was rosy. Verizon reported a 2.7 percent year-over-year drop in average revenue per user to $49.42 during the second quarter. Analysts have cited the increasing popularity of family plans that allow new customers to sign up for service at lower monthly recurring charges as a reason for flat ARPU.
Despite the drooping ARPU, Verizon Wireless posted a 14.6-percent increase in total revenues from $6.8 billion during the second quarter of 2004 to $7.8 billion this year. Wireless revenues accounted for 42.3 percent of parent company Verizon Communications Inc.’s total revenues during the quarter, compared with 38.6 percent of total revenues during the second quarter of 2004.
Wireless operating income also improved more than 10 percent from $1.6 billion in 2004 to $1.8 billion this year, though operating income margins dropped from 23.6 percent last year to 22.7 percent this year.
“Wireless in particular remains in high gear,” said Ivan Seidenberg, Verizon chairman and chief executive officer. “Because of the healthy margins in our wireless business, we are able to take the steps to increase our market share, which we did effectively this quarter.”
Verizon Wireless accounts for nearly half of the net customer additions posted by the industry’s nationwide operators during the second quarter, with only T-Mobile USA Inc. still to report. Verizon Wireless accounted for one-third of net customer additions during the first three months of the year.
Sprint numbers lag
In addition to closing in on Cingular, some of Verizon Wireless’ increased market share appeared to have come at the expense of Sprint Corp., which surprised many analysts by posting only 400,000 direct subscriber additions during the second quarter. Estimates had Sprint adding between 450,000 and 500,000 customers during the quarter, which would have almost matched the 505,000 subscribers it added during the second quarter of 2004.
Sprint attributed the shortfall to an increase in deposit requirements during the period, which impacted gross subscriber results.
Sprint’s wholesale and network affiliate customer growth also stumbled from 621,000 net customer additions during the first quarter of this year to 188,000 net customer additions during the second quarter. Sprint noted the wholesale growth was affected by a number of issues. The company finished moving Qwest Communications International Inc.’s customer base to its network during the first quarter; mobile virtual network operator partner Virgin Mobile USA L.L.C. experienced seasonally lower growth; and Sprint eliminated inactive subscribers from a reseller’s base.
Sprint ended the quarter with 26.6 million customers on its network, comprised of 18.7 million direct, 4.4 million wholesale and 3.5 million affiliate subscribers.
Customer churn improved from 2.3 percent during the second quarter of 2004 to 2.2 percent this year, while ARPU remained flat at $62. Sprint said data services contributed $6.50 to ARPU during the quarter, an increase from the $6 posted during the first quarter.
Sprint’s total wireless revenues climbed nearly 12 percent from $3.6 billion during the second quarter of 2004 to $4 billion this year, including an 82-percent increase in wholesale and affiliate revenue from $124 million last year to $226 million this year. Wireless operating income surged nearly 50 percent from $418 million last year to $625 million this year.
Regional results
U.S. Cellular Corp. said it added 94,000 customers during the second quarter, which was well below the 137,000 subscribers the carrier added during the second quarter of last year and below industry estimates of around 125,000 net customer additions.
The shortfall was attributed to a drop in gross subscriber additions from 365,000 customers during the second quarter of 2004 to 340,000 subscribers this year, which offset a slight decline in postpaid customer churn from 1.5 percent last year to 1.4 percent this year. U.S. Cellular noted that it ended the second quarter with more than 5.2 million subscribers on its network.
ARPU dropped 5 percent year-over-year from $41.58 during the second quarter of 2004 to $39.42 this year, while the cost per gross customer addition increased more than 17 percent from $392 last year to $460 this year.
Total revenues surged 4.2 percent from $712.2 million during the second quarter of 2004 to $741.9 million this year. The carrier added that this year’s results did not include markets U.S. Cellular sold to Alltel Corp. last November, which contributed $5.6 million in service revenues during the second quarter.
Despite the increased revenues, net income dropped slightly from $37.98 million during the second quarter of 2004, or 44 cents per share, to $37.94 million this year, or 43 cents per share.
Nextel Partners Inc. posted a company-record 103,300 net customer additions during the quarter, which was 12-percent higher than the 92,000 customers the carrier added during the second quarter of last year and surpassed the most optimistic analyst estimates. Nextel Partners noted it was the fourth quarter in a row that the company posted record net additions, and it ended the quarter with more than 1.8 million subscribers.
Nextel Partners’ strong customer growth was boosted by a drop in customer churn from 1.4 percent during the second quarter of last year and 1.45 percent during the first quarter of this year to 1.3 percent during the second quarter, which Nextel Partners said matched a company low.
The carrier posted $68 in ARPU during the quarter, which was in line with the second quarter of 2004 and ahead of estimates of between $66 and $67.
Total revenues surged 30 percent year-over-year from $334.6 million during the second quarter of 2004 to $434.8 million this year, with nearly all of the increase coming from service revenues. Analysts were expecting the carrier to post around $415 million in revenues for the quarter.
Net income improved from a loss of $20.5 million during the second quarter of 2004, a loss of 8 cents per share, to a return of $71.9 million this year, or 23 cents per diluted share.
