Bloomberg News

Verizon Names McAdam CEO, Posts Profit on Wireless Demand

July 22, 2011

(Updates with analyst’s comment in fourth paragraph.)

July 22 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone company, named President Lowell McAdam chief executive officer, replacing Ivan Seidenberg, and reported a profit of $1.61 billion as customers snapped up the iPhone.

McAdam, who Verizon had signaled would become CEO, takes over the role next month. Second-quarter profit was 57 cents a share, after a loss a year earlier, Verizon said today, topping the 55-cent average of estimates compiled by Bloomberg.

McAdam, 57, will aim to keep New York-based Verizon’s wireless-customer gains ahead of those of rival AT&T Inc., which is set to become the dominant mobile carrier after acquiring T-Mobile USA Inc. He also needs to manage a loss of traditional phone users, while challenging cable-TV companies with the FiOS fiber-optic TV and Internet service.

“They’re going to continue to go after wireless growth and grow the fiber part of the business,” said Todd Rosenbluth, an equity analyst at Standard & Poor’s in New York, who advises holding the stock. “This is a well-orchestrated handoff. Given that he’s been chief operating officer for the past year, we don’t expect much change in strategy.”

In a bid to outdo rivals’ data speeds, Verizon Wireless is building a new high-speed network over three years. The 4G technology, along with the introduction of Apple Inc.’s iPhone, helped Verizon add 1.3 million contract subscribers last quarter, compared with the 948,000 estimate of six analysts compiled by Bloomberg. That beat gains at Dallas-based AT&T, the largest U.S. phone company, which has had the iPhone since 2007.

McAdam’s Career

Verizon, which co-owns its mobile unit with Vodafone Group Plc, fell 57 cents to $37 at 9:38 a.m. in New York Stock Exchange composite trading. The stock had added 5 percent this year before today.

“Verizon still has enjoyed the perception of having a better network,” said Jonathan Atkin, an analyst at RBC Capital Markets in San Francisco. He projects the shares will outperform others in the industry in the next year. “The playing field has been leveled, with both companies having a similar array of devices.”

McAdam will be CEO effective Aug. 1, while Seidenberg, 64, will remain chairman. McAdam had run Verizon Wireless, the most profitable part of Verizon, for more than three years, before his appointment as president last year. By boosting sales at the wireless unit, he helped the parent company grow even as it lost home-phone customers.

Android, IPhone

McAdam helped build Verizon Wireless into the biggest U.S. mobile-phone carrier, serving as the division’s operating chief after its inception in 2000. He previously ran wireless provider PrimeCo Personal Communications as CEO, worked as vice president of international operations at AirTouch Communications and held various roles at Pacific Bell.

Verizon will lose its title as the No. 1 mobile carrier if AT&T completes its $39 billion T-Mobile purchase, announced in March. AT&T said yesterday it expects to complete the deal, which combines the No. 2 and No. 4 carriers, in the first quarter of next year. The takeover is being reviewed by the U.S. Federal Communications Commission and the Justice Department.

McAdam, who started his private-sector career in 1983 as the old Ma Bell was being broken into pieces, will also need to help Verizon succeed in an industry in which Apple and Google Inc. are gaining more power.

The iPhone and phones running Google’s Android operating system represent the fastest-growing part of the mobile-device market, with Apple and Google being both rivals and partners to Verizon. Apple and Google market mobile applications that compete with Verizon’s products, even as the iPhone and Android phones operate on Verizon Wireless’s network.

4G Network

Verizon Wireless gained 2.3 million iPhone customers last quarter, the first full period it carried the device. AT&T said yesterday it won 3.6 million iPhone users in the period. AT&T cut the price of the older 3GS model to $49 to entice customers to stay, while the latest iPhone version costs $199 at both AT&T and Verizon.

AT&T’s four-year U.S. exclusivity deal for the iPhone ended in February when Verizon began selling the device. AT&T, which trails Verizon in mobile-phone subscribers, yesterday said it added 331,000 contract customers last quarter.

Verizon is also winning customers with devices such as the HTC Corp. ThunderBolt that work on Verizon’s faster 4G network. Verizon covered a population of 100 million potential users with its 4G network by the end of 2010 and will be “substantially through” building the network by the end of 2012, Chief Financial Officer Fran Shammo said at an investor conference in May. AT&T plans to start offering 4G service later this year.

In the second quarter, Verizon’s wireless-service sales increased 6.6 percent, boosted by a 22 percent increase in data revenue as customers used their phones for e-mailing and browsing the Web. Total sales rose 2.8 percent to $27.5 billion.

Verizon added 184,000 users for its FiOS television service, and 189,000 FiOS Internet users.

Net loss a year earlier was $1.19 billion, or 42 cents a share.

(The company held a conference call this morning to discuss the results. To listen, go to {LIVE <GO>}.)

--Editors: Ville Heiskanen, Peter Elstrom

To contact the reporters on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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