Verizon and AT&T pitch smart phones for profit

Verizon, largest wireless carrier in the USA, delivered Q2’09 results Monday that were slightly better than expectations, but the company added fewer net wireless customers than some analysts expected. The iPhone affected AT&T?s profit and loss statement, as well as Verizon?s bottom line. Will the Palm Pre raise the bar?

Dennis Strigl, Verizon’s COO, admitted that the Apple iPhone, sold exclusively in the U.S. by AT&T, had affected their sales. He said that they saw customers moving over to AT&T for the new iPhone 3GS in the last part of June. Apple’s new iPhone went on sale in the middle of June, just two weeks before the end of AT&T’s second quarter. AT&T reported last week it activated more than 2.4 million devices before the end of the second quarter. AT&T’s second quarter highlighted 1.4 million subscriber gains.

Strigl said they will add the Palm Pre to their lineup early in 2010. Sprint Nextel is currently the only company selling the Palm Pre, which went on sale June 6. When the device launched at CES in January, Sprint’s CEO Dan Hesse hinted about a much longer exclusive deal for the Palm Pre.

"Sinfulta", a commentor at PhoneArena, said that Verizon [49% owned by Vodafone] currently has a tentative launch date for their Palm Pre of 01/17/10. He further claims that Sprint is buying CDMA chipsets from them now. This person also claimed that Palm is already purchasing chipsets from the company he works for that are Verizon’s CDMA version. Maybe "sinfulta" knows what they are talking about or maybe they are just trying to get some attention.

Even though AT&T can attribute much of its subscriber growth to the iPhone, the device, which is highly subsidized, has also hurt the company’s wireless operating and profit margins. No word on whether the Palm Pre will be subsidized at Verizon.

Verizon Communications had revenue dollars and subscriber number increases, but declining second quarter profits which dropped 7.2 percent, were not solely related to customer counts. They also cited pension settlements tied to workforce reductions, and merger integration costs related to its Alltel acquisition.

The average Verizon mobile subscriber spent $51.10 a month, down 0.8 percent from a year earlier. Verizon posted income of $1.48 billion, or 52 cents a share, down from $1.88 billion, 66 cents a share, a year earlier, and revenue increased 11 percent to $26.86 billion. Wall Street analysts had forecast earnings of 63 cents a share on revenue of $26.85 billion. Verizon Wireless posted year-over-year revenue growth of 27.7 percent to $15.5 billion, with subscriber totals growing 1.1 million in the quarter to 87.7 million.

John Killian, Verizon’s CFO, said the weak economy has reduced their growth rate and they had to lay off 8,000 employees. He added they plan to lay off another 8,000 staff and contract jobs in the second half of the year.

Verizon?s wireless churn rate continues to be the lowest in the industry with an overall rate of 1.37 percent. Its churn rate for its post-paid customers, or customers who pay their service monthly, was 1.01 percent. Meanwhile, AT&T reported an overall churn rate of 1.49 percent and a post-paid churn rate of 1.09 percent for the second quarter. The traditional definition of churn rate is the rate of defecting customers versus incoming customers and is one of two primary factors that determine the steady-state level of customers a business will support.

Verizon Wireless also noted last Friday that it had 87.7 million customers at the end of the quarter. In contrast, AT&T said it had 79.6 million. Verizon’s 3G (third generation) network now covers approximately 284 million people in the US.

COO Strigl said that their new 4G wireless network using LTE [Long Term Evolution] technology will start testing on the 700MHz spectrum  in Seattle and Boston before the end of the year. Verizon has said they will deploy the service commercially in about 30 markets in 2010. They plan to build out the 700MHz network in 2011 and 2012 and to completely cover their wireless network by the end of 2013.

Verizon’s broadband connections totaled 9.1 million in the second quarter, a 9.4 percent increase year over year and a net increase of 186,000 from the first quarter 2009. They admitted this includes a decrease of 117,000 DSL-based Verizon High Speed Internet connections from the first quarter, which they say was offset by the 303,000 increase in FiOS Internet customers.

Over the past year, Verizon has added more than 1.1 million FiOS TV customers and expanded the availability of FiOS "triple-play" bundles of voice, Internet and TV services by approximately 46 percent. By the end of the second quarter, FiOS triple-play bundles were available to 10.3 million premises of the approximately 32 million households in Verizon’s wireline network footprint, compared with 7.0 million premises at the end of the second quarter 2008.

Verizon’s FiOS network passed an additional 650,000 premises in the second quarter.  As of the end of the quarter, the FiOS network passed 13.8 million premises, or approximately 43 percent of households in Verizon’s wireline network footprint.

On Tuesday, July 28, Verizon Wireless will host a Verizon Developer Community conference and webcast to facilitate application development for use on the Verizon Wireless 3G and 4G networks. 

The author is a Verizon Wireless subscriber and a Palm user.