iPhone, indirect propel Verizon Wireless Q1 growth

Verizon Wireless (VZ) continued to show strong postpaid customer growth during the first quarter of this year, buoyed by its recently launched LTE service as well as the launch of Apple Inc.’s iPhone device on its network. However, non-traditional – at least for Verizon Wireless – segments continued to make strong inroads at the carrier.
Verizon Wireless said it added just under 1.8 million net additions to its network during the first three months of the year, which was an 18% improvement compared with the first quarter of 2010 and just short of the 2 million net additions posted yesterday by rival AT&T Mobility.
Verizon Wireless noted that just under half of that growth was from its direct channels, meaning customers signing up directly to its branded offering, with 906,000 net customer additions to its postpaid offering countering the loss of 27,000 customers from its prepaid service. Both results were year-over-year improvements for the carrier, which added just 412,000 postpaid and lost 146,000 prepaid customers during the first quarter of 2010.
Verizon Wireless added that sales of the iPhone, which began in early February, totaled 2.2 million units during the quarter, with approximately 500,000 being sold to new customers. AT&T Mobility by comparison said it sold 3.6 million iPhones during the whole quarter.
Verizon Wireless also noted that the next version of the iPhone would launch simultaneously at both carriers and that the Verizon Wireless version would be a “global” device, meaning it would likely include a GSM-based chipset to allow for international roaming.
The remainder of its net customer growth came from wholesale partners and “other connections,” which contributed 897,000 new connections during the quarter. Those results were down from the 1.2 million net additions posted in 2010.
For comparison, AT&T Mobility reported that Of the 2 million net additions in the quarter, 1.3 million were connected devices; 62,000 were postpaid retail net adds; 85,000 prepaid net adds and 561,000 reseller net adds.
The first quarter growth pushed Verizon Wireless retail customer base to 88.4 million customers, with total connections on its network surging to just over 104 million. AT&T Mobility claimed 97.5 million total connections on its network at the end of the quarter.
Helping bolster Verizon Wireless customer growth was a drop in customer churn, which fell from 1.42% during the first quarter of 2010 to 1.33% this year.
Verizon Wireless also noted strong growth from smartphone sales during the quarter with the percentage of postpaid customers using the data-hungry and revenue-increasing devices jumping from 28% of its total base at the end of 2010 to 32% at the end of the first quarter and accounting for 60% of all postpaid device sales during the quarter. Those devices helped push postpaid data average revenue per user up more than 17% year-over-year to $20.51, with data services now accounting for 38.1% of service revenues.
Verizon Wireless’ total revenues increased 10.2% year-over-year to $16.88 billion for the first quarter and accounted for 62.5% of parent company Verizon Communications Inc.’s $26.99 billion in total revenues for the quarter, which was an increase over the 56.9% for the first quarter of 2010.
While wireless revenues were up, expenses also increased more than 14% to $12.5 billion, with the biggest percentage increase coming from the cost of service and sales. As it’s in the midst of an aggressive rollout of LTE services, Verizon Wireless noted that capital expenditures were up more than 54% year-over-year during the first quarter to more than $2.7 billion. The carrier’s LTE network, which launched late last year, now covers around 120 million potential customers with plans to expand to 185 million pops by year end.
The increase in expenses squeezed earnings before interest, taxes, depreciation and amortization to a modest 1.7% improvement with EBITDA service margins dropping year-over-year from 45.6% to 43.7%.