Verizon's Setting the Bar
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The nation’s largest wireless carrier, Verizon Wireless (NYSE: VZ), released their second quarter results on Thursday July 19th. Verizon’s Q2 operating income jumped to $5.7 billion, from $4.9 billion this time last year. Total revenue was $28.6 billion, up 3.7% year over year. Earnings per share came in at $.64, exactly in line with Bloomberg’s consensus. Estimated revenue was $28.5 billion, so again Verizon came in right on target. Along with AT&T (NYSE: T), Verizon credits most of their success to their wireless division, though as the largest mobile carrier Verizon’s $5.7 billion income trumped AT&T’s $3.9 billion. Both AT&T’s and Verizon’s results make Sprint's (NYSE: S) $1.37 billion quarterly loss look even more abysmal.
Verizon Wireless added a total of 1.2 million customers; nearly 900,000 of those were new contract customers. AT&T added 320,000 new contract customers, Sprint lost contract customers but this was primarily due to the shutdown of the Nextel network. Sprint's network actually added customers this quarter while Nextel’s lost customers. In the long run this is good news for Sprint because as they get customers off of Nextel's network they can shut down the aging iDen network and replace it with their new 4G LTE network.
Verizon Wireless also pulled in some impressive fees from data plans. They totaled $6.9 billion for the second quarter which was an increase of 18.5% from last year. The percentage of Verizon’s customers using a smartphone is now up to 50%, up from 47% last quarter. On AT&T 62% of current phones are smartphones and AT&T sold 5.1 million smartphones in the last quarter. 73% of those 5.1 million were Apple’s (NASDAQ: AAPL) iPhone. For the second quarter Verizon activated roughly 2.9 million Android phones and 2.7 million iPhones. This shows that AT&T continues to be far more reliant than Verizon or Sprint on the iPhone (Sprint sold 1.5 million iPhones in the second quarter). This reliance stems from the fact that AT&T had US exclusivity for the iPhone for years and thus never truly embraced Android. While AT&T was loving the iPhone attention, Verizon and Sprint had to build up their smartphone arsenals through Android. On Verizon this came mainly in the form of their Droid line and on Sprint it was the EVO line. Now that both Verizon and Sprint have the iPhone the playing field has leveled and the quarterly results from Verizon show that they continue to outperform their competition.
All tolled up Verizon has 94 million devices activated on their network. As the percentage of devices on Verizon’s network that are ‘smart increases’ Verizon’s hefty data revenue will continue to grow. This is not only because of the growing number of smartphones on Verizon, but because of their new shared data plans. For new customers on Verizon their only option will be a shared data plan. This means that every phone will get unlimited minutes and text messages the only thing that will raise or lower monthly bills is the number of devices per plan and the amount of data customers want. AT&T also has a version of shared data plans rolling out for their customers the difference is that AT&T allows new customers to choose shared data or a traditional cell phone plan, at least for now. At the moment Sprint does not have shared data options.
The other big plus that Verizon has on their network are their 337 4G LTE markets. AT&T has approximately 75 and Sprint has 15. Currently 230 million Americans are covered by Verizon’s LTE. Verizon is not slowing down their LTE deployment. According to their rollout plans they will have their entire 3G footprint covered with LTE by the end of 2013. Additionally Verizon has required every new smartphone to be LTE equipped if it wants to run on Verizon. Phones like HTC’s One series have already fallen foul of this rule. Though AT&T will at some point catch up to Verizon’s LTE coverage, if a new LTE equipped iPhone 5 launches later this year as expected Verizon’s substantial LTE network will give them an edge.
Verizon is not only a cell phone network, their wireline business pulled in nearly ten billion dollars in revenue this quarter. This quarter’s $9.9 billion from their wireline business is down from $10.2 billion a year ago. FiOS, Verizon’s successor to their DSL high speed internet added 134,000 new internet connections and 120,000 new TV connections this quarter. Revenue from their wireline business also grew by 2.5% as average revenue per customer jumped to $149. Verizon FiOS is faster than high speed solutions like Comcast's cable and DSL however it is not as widely available as cable and DSL, and Verizon has also stopped rolling out to FiOS. FiOS competes directly with offerings like AT&T’s U-Verse and Comcast’s DOCSIS 3.0.
AT&T and Verizon have a very similar pricing structure and networks nationally; they are both far superior to Sprint's or T-Mobile's. This gives them a duopoly over the wireless market in the US. As long as this is the case they will both continue to do well. That being said Verizon has had the upper hand for several years now and with better LTE, excellent phone options and new shared data plans, Big Red will continue to outperform AT&T.
ded004 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.