Verizon Wireless added some much-needed fuel to a rather bleak-looking
second quarter last week as the nation’s largest carrier posted an
industry-record 1.5 million net customer additions during the quarter and blew
past the 40-million total-subscriber mark. With just T-Mobile USA Inc. left to
report, Verizon Wireless looks set to again lead the industry in quarterly
customer growth.
Verizon Wireless said its 1.53 million total net additions
during the quarter included 1.46 million retail customers compared with 1.3
million total net adds last year. It ended the first half of the year with 40.4
million total customers on its network. Verizon Wireless also increased its
market share of net additions among seven of the eight largest carriers that had
reported second-quarter results last week from nearly 38 percent during the
second quarter of 2003 to more than 45 percent this year.
Raymond James &
Associates Inc. industry analyst Ric Prentiss said he had originally expected
the wireless industry to add approximately 4.1 million customers during the
second quarter, but noted last week that results so far indicated that the
industry was on pace to add more than 4.6 million customers, which would be
ahead of the 4.3 million subscribers added during the second quarter of
2003.
Boosting Verizon Wireless’ strong quarterly subscriber growth was a
7.5-percent year-over-year increase in gross subscriber additions to 3.3
million, which was slightly below analyst estimates, and a dramatic drop in
customer churn from 1.7 percent to 1.45 percent, which was lower than estimates
and one of the lowest quarterly churn rates reported in the industry. Analysts
also noted that the carrier posted a 3-percent increase in average revenue per
user to $50.80 during the quarter, a 6-percent drop in cash cost per user to
$20.58 and a 3.6-percent decrease in cost per gross addition to $269.
The
across-the-board improvements in operational metrics also helped Verizon
Wireless post a 25-percent increase in total revenues during the quarter from
$5.5 billion last year to $6.8 billion this year, which included $255 million
from its data services. The increased revenues helped parent company Verizon
Communications Inc. post a 6-percent increase in revenues to $17.8 billion
despite year-over-year declines in most of its wireline operations.
“Across the board [Verizon] results exceeded our above-consensus
estimates, demonstrating increasing strength in a challenging market,”
noted SG Cowen telecommunications industry analyst Tom Watts in a research
note.
While Verizon Wireless was blowing the doors off its competitors, a pair
of affiliates continued to show strength on a smaller scale.
Nextel Partners
Inc. beat estimates, adding 92,000 subscribers during the second quarter, which
was also ahead of the 89,000 subscribers the carrier added last year. It ended
the first half of this year with more than 1.4 million total subscribers.
Similar to Verizon Wireless, Nextel Partners built its strong customer growth on
relatively steady gross subscriber additions boosted by a drop in customer churn
from 1.5 percent last year to 1.4 percent during the second quarter of this
year.
The carrier also posted improved financial performance, including a
42-percent increase in total revenues to $332.4 million and a decrease in net
losses from $110 million during the second quarter of 2003, or a loss of 44
cents per share, to a loss of $19.4 million this year, or a loss of 7 cents per
share. Nextel Partner’s management also reported $29 million in free cash flow
during the second quarter of the year compared with $23.5 million in negative
free cash flow last year.
A number of industry analyst firms upgraded their
guidance for Nextel Partners, noting the carrier continues to meet or exceed
expectations.
“Nextel Partners has a strong track record for
execution,” wrote UBS Warburg in a research note. “Second-quarter 2004
was just one of many quarters that Nextel Partners has delivered on meeting or
beating expectations.”
Sprint PCS affiliate US Unwired Inc. also reported
improved quarterly results, including an increase in net customer additions from
8,878 subscribers last year to 17,358 subscribers this year. The carrier noted
its total customer base increased to 668,705 subscribers at the end of the
second quarter, including 130,338 resale customers, which included mostly Virgin
Mobile USA L.L.C. subscribers.
Customer churn dropped from 3 percent last year
to 2.9 percent this year, while ARPU dipped from $54.59 during the second
quarter of 2003 to $54.22 this year.
US Unwired reported total revenues
increased more than 10 percent year over year to $147.9 million during the
second quarter boosted by an 11-percent increase in service revenues and a
4.5-percent increase in roaming revenues. Net losses also increased from $35
million last year, a loss of 27 cents per share, to $75 million this year, a
loss of 53 cents per share.
On the legal side, the Securities and Exchange
Commission filed a lawsuit last week against Michael Felicissimo, former Qwest
Communications International Inc. chief financial officer of its wireless
division, claiming he improperly recognized $112 million in revenue from Qwest
Wireless in an attempt to meet financial objectives set by the company. In
addition, Felicissimo is accused of refusing to restate financial results after
learning of the error and ordered Qwest employees not to make the corrections
until after he planned to leave the company so he could negotiate a better
severance package.
The overstated revenues for Qwest Wireless included $57
million in 2000, $46 million in 2001 and $9 million during the first two
quarters of 2002, and allowed the wireless division to show a net income instead
of a loss during some quarters and reduce its net losses in other quarters.
Qwest signed a deal last year with Sprint PCS to migrate its more than
800,000 wireless subscribers to Sprint PCS’ network as part of a mobile virtual
network operator plan and earlier this year announced a deal to sell its
wireless division assets, including spectrum and infrastructure, to Verizon
Wireless for $414 million.
