Polar opposite pictures of the second quarter emerged last week from Verizon Wireless and Sprint Nextel Corp. as the industry’s No. 2 and No. 3 operators reported financial results.
Verizon Wireless’ parent company, Verizon Communications Inc., encountered what its executives called a “pivot point” in the quarter, with wireless average revenue per user ticking upwards after several quarters of sliding and overall gains in wireless revenue.
“We saw better-than-expected sequential growth,” said Doreen Toben, Verizon’s chief financial officer, during the conference call. “Wireless continued to surpass its own milestones.”
In terms of ARPU, Verizon Wireless improved its numbers to $49.71, up nearly 30 cents from the previous year’s second quarter and an increase of more than $1 from the first quarter of 2006. Data revenue made up almost 13 percent of ARPU and drove the improvement. Toben added that Verizon Wireless expects to continue to make ARPU gains due to growing use of its CDMA2000 1x EV-DO network and products such as Vcast music downloads.
Verizon Chief Executive Officer Ivan Seidenberg attempted to settle speculation that Vodafone Group plc might sell its 45-percent stake in Verizon Wireless. Seidenberg said during a recent meeting with Vodafone’s CEO Arun Sarin “what Arun communicated to us was that Vodafone was extremely pleased with their position in the partnership. … The creation of value that’s available to them over the next several years is far greater than any strategy that they might have to exit the partnership.”
Seidenberg added that he and Sarin had agreed that both men would “make sure that we clarify to our respective investors that at this point in time there really isn’t much reason for people to speculate over any change in the whole arrangement between the two companies.”
The nation’s No. 2 wireless carrier reported that it added 1.8 million net customers during the quarter, all of them through direct channels. The carrier ended the first half of the year with 54.8 million subscribers.
Verizon Wireless’ total revenues were up 18 percent to $9.2 billion for the quarter, and its total churn was 1.13 percent. Retail postpaid churn was just .87 percent, the company reported.
Despite the strong wireless results, Verizon saw its profits fall nearly 24 percent due to costs related to its acquisition of MCI Inc., and labor and severance charges; pro forma adjusted net income dropped just 2 percent compared to the year-ago period.
“This is not the usual quarter because we see this as a pivot in that we can look ahead and see a lot more daylight than we’ve seen in the past couple of quarters,” Seidenberg said.
Sprint Nextel, meanwhile, revised its guidance for the year downward following lower than expected customer growth numbers and disappointing financials.
The carrier announced that it added just 708,000 net subscribers in the quarter, most of which were prepaid customers. Sprint Nextel added just 210,000 postpaid subscribers, with the rest of the carrier’s subscribers came from prepaid division Boost Mobile L.L.C.
Analysts had expected a weak postpaid performance from Sprint Nextel, but the company’s results were lower than projected.
The industry’s No. 3 carrier was also unable to get its churn down from 2.1 percent, where it has hovered for several quarters. Boost churn increased to 6 percent, from 5.4 percent in the first quarter. Boost’s ARPU also dipped from $38 in the year-ago quarter to $34, based on lower pricing and lower average use.
The acquisition of Nextel Partners Inc., which closed during the quarter, brought Sprint Nextel’s customer base up to 51.7 million subscribers.
Despite increasing demand for data services, the company’s ARPU dropped 6 percent compared with the second quarter of 2005, landing below $62; however, the carrier noted that about one-third of the ARPU decline “is attributable to the acquisition of affiliates.” Data revenue increased by almost 70 percent year-over-year, the company reported.
According to CEO Gary Forsee, the company saw more subscribers than it had expected move to lower-priced service plans. Also, Forsee indicated that Sprint Nextel had adopted initiatives to “improve our customer credit mix and customer loyalty,” areas that he said affected the quantity of carrier’s postpaid additions. However, Forsee said the new customers Sprint Nextel did attract were higher quality subscribers.
“While the company shines the spotlight on bells and whistles, including mobile music and quadruple-play services for cable TV customers, its primary focus should instead be on improving the quality of its core product: postpaid retail service,” noted John Byrne, an analyst for industry advisory firm Technology Business Research.
Sprint Nextel’s net income took a substantial hit, plummeting from $600 million in second-quarter 2005 to $370 million this year.
Sprint Nextel shares were battered on the news dropping 15 percent following the financial release.
Sprint Nextel also announced it will expand its telephony relationship with Time Warner Cable. Time Warner plans to use Sprint Nextel’s IP network for Voice over Internet Protocol offerings across most of the cable company’s footprint, except for New Hampshire and Maine. The five-year agreement “marks Sprint Nextel’s continued expansion into the cable market, creating a revenue stream with strong growth potential,” the carrier said.
