Telecom giant and Dow-30 component Verizon Communications (VZ - Free Verizon Stock Report) recently reported first-quarter earnings of $0.59 a share, a 15.7% year-over-year advance, on a solid 4.6% top-line improvement. Verizon shares traded modestly higher following the announcement.
As is usually the case, Verizon Wireless (55% owned by Verizon Communications) was responsible for the lion's share of the good news, with operating revenues up 8.2% from the year-earlier figure, to $18.3 billion. Moreover, wireless subscribers continue to consume bandwidth at an impressive clip, with data revenues increasing 21.1% in the period, to $6.6 billion. Moreover, the March period marked the most rapid rate of growth in mobile service revenues in three years, which is largely attributable to the increased usage of smartphones.
However, it is worth noting that wireless customer growth slowed during the quarter, with Verizon Wireless adding 734,000 retail net customers during the period, as compared with the 1.5 million net additions in the December quarter. Still, at the end of the March period, smartphones comprised almost 47.0% of the Verizon Wireless retail postpaid customer phone base, up from 43.5% at the end of the fourth quarter. This certainly augurs well for average revenue per user (ARPU) growth (which was up 3.6% in the quarter), since smartphone users typically pay additional data-related fees.
We look for data revenues to continue growing at a rapid clip, as Verizon Wireless is in the midst of rolling out its 4G LTE (fourth-generation, Long-Term Evolution) mobile broadband network, the largest of that type in the United States. As of mid-April, the 4G LTE service was available to more than 200 million people in 230 markets across the country, or roughly two-thirds of the population. What's more, the mobile unit will start offering new shared data service plans this summer, which enables customers to connect more than one device under a single data service plan. This should also help boost ARPU going forward.
Finally, throughout much of last year, Verizon's bottom line felt the dilutive effects of bringing Apple's (AAPL) blockbuster iPhone into service, due to handset subsidies and capital layouts necessary to drive subscriber growth. However, the tide is beginning to turn, as the mobile unit's margins widened quite a bit during the March quarter, as hefty subsidies become less needed.
Elsewhere, revenues at Verizon's traditional Wireline segment declined 2.2% in the first quarter. On the bright side, the division continues to gain new FiOS Internet and television subscribers. Notably, Verizon added 193,000 net new FiOS Internet connections and 180,000 net new FiOS Video connections in the first quarter, and the FiOS penetration rate (subscribers as a percentage of potential subscribers) continues to increase. Separately, Verizon Wireless is set to auction a parcel of radio frequencies, which could be worth billions of dollars given that customer demand for bandwidth continues to grow rapidly.
About The Company:Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.