Verizon Wireless reported a steep drop in Q2 connection growth, while mixed spending, labor strike impact dragged on revenue
Verizon Wireless continued to see increased competitive pressure during the second quarter, with connection growth nearly half of what was reported last year and lower revenue.
The carrier said it added 585,000 direct connections during Q2, which included 615,000 postpaid connections offset by the loss of 30,000 prepaid connections. The results fell short of the 1 million direct connections added during the second quarter of 2015, which included more than 1.1 million net postpaid additions and a loss of 126,000 direct prepaid connections.
The results also failed to meet analyst forecasts, which had the carrier adding more than 850,000 direct connections for the quarter. AT&T Mobility late last week reported 1.4 million total net connections to its network during the quarter, though with a much different segment mix, while Sprint earlier this week said it added 377,000 net connections during the three-month period.
Further breaking down its wireless growth, Verizon Wireless said “phones” accounted for 86,000 net additions during the latest quarter as LTE smartphone growth was offset by losses in basic and 3G devices. Tablets accounted for a vast majority of postpaid connections, with the carrier adding 356,000 of the large-screened devices during the latest quarter.
On the prepaid side, the carrier said its ability to tighten connection losses was attributed to new rate plans. Verizon Wireless made permanent previous promotional plans during the quarter that included more data to better compete in the hotly contested market.
Through the first half of the year, total direct connection growth was running 24.3% below last year’s figures, with the carrier’s total direct connection base – excluding wholesale, mobile virtual network operator partners and “internet of things” devices – at 113.2 million total connections.
The year-over-year dip in connection growth was partially seen in customer churn numbers, which increased from .9% to .94% on the postpaid side and from 1.18% to 1.19% across its retail operations.
Customer spending was mixed during the latest quarter, with retail postpaid average revenue per account dipping 5.6% from last year to $145.09, but managing to post a 2.6% year-over-year increase to $167.18 when taking into account monthly device payments. The carrier noted 53% of postpaid phone customers were making device payments at the end of Q2 compared with 48% at the end of the previous quarter.
Those mixed financials were highlighted by a 4% year-over-year drop in revenue, which came in at $21.7 billion for the latest quarter. The results still handily topped the $17.9 billion in Q2 revenue posted by AT&T Mobility, and are set to lead the domestic wireless space for the quarter.
A steeper drop in operating expenses also helped Verizon Wireless post a 4.2% increase in operating income to $8 billion for the latest quarter, with operating margins growing from 34% last year to 36.9% this year. Wireless earnings before interest, taxes, depreciation and amortization increased 3.8% year-over-year to $10.3 billion, with EBITDA margins growing from 43.9% last year to 47.5% this year.
Across Verizon Communications’ broader operations, operating revenue dipped 5.3% year-over-year to $30.5 billion for the quarter. The telecom giant noted that a heated labor dispute during the period resulted in a net loss of both Fios internet and video service connections during the quarter.
In addition to lower revenue, Verizon Communications posted a 6.5% increase in operating expenses, which when combined with a one-time gain from tower sales posted during the second quarter of last year, resulted in an 80.9% drop in company net income from $4.4 billion last year to $831 million this year.
In connection with the labor dispute, Verizon management noted the now settled rancor “negatively impacted wireline operating income.” Verizon previously noted it expected the strike to hit Q2 financial results, with that hit expected to stay on the books for the remainder of the year.
Verizon Communications CFO Fran Shammo, speaking last month at an investor conference, said the company would see an earnings impact of between 5 cents and 7 cents for Q2 related to the labor strike, with that financial impact set to also hit full-year results. Shammo explained the costs came from overtime paid to management employees, hiring contract workers to cover for striking workers and a decrease in new business installations. That decrease was expected to result in Verizon posting net losses across its Fios broadband business for the quarter.
Investors appeared put off by the latest results, with Verizon’s stock (VZ) trading down more than 1.5% early Tuesday, though not far off of a 52-week high reached earlier this month.
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