Verizon Communications Inc. (VZ:US), the second-largest U.S. phone company, posted earnings that beat analysts’ estimates as smartphone demand boosted subscriber count and slowing sales of Apple Inc. (AAPL:US)’s iPhone helped margins.
First-quarter earnings rose to 59 cents a share from 51 cents a year earlier, New York-based Verizon said today. Analysts projected 58 cents, the average of estimates (VZ:US) compiled by Bloomberg. Sales gained 4.6 percent to $28.2 billion, compared with the $28.1 billion analysts predicted.
Verizon Wireless added 501,000 contract customers, compared with the 497,285 average estimate of eight analysts surveyed by Bloomberg. New sales of the iPhone, which Verizon and rivals such as AT&T Inc. (T:US) sell at a loss to attract subscribers, fell to 3.2 million from the fourth quarter’s 4.3 million.
“To gain half a million new subscribers in a seasonally weaker quarter without a blockbuster device is very respectable,” said Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts.
Verizon Wireless, the largest U.S. wireless carrier, is gaining users even as the market nears saturation. Wireless penetration in the U.S. is 105 percent when including mobile devices like tablet computers, said Bob Roche, a statistician with CTIA, a wireless industry trade group.
Verizon, which co-owns its wireless business with Vodafone Group Plc (VOD), added 1.3 percent to $38.15 at the close in New York. The stock has risen 2.4 percent in the past year.
The slowing market is forcing Verizon Wireless into more intense competition with AT&T and Sprint Nextel Corp. (S:US), with the carriers trying to attract customers with price promotions, faster network speeds and new mobile-device models. Verizon sold 6.3 million smartphones, such as the iPhone, in the period.
New sales of the iPhone hurt carriers’ profit margins initially, because they pay Apple an estimated $600 for each phone and sell it at a loss to lure subscribers into two-year contracts. Users of iPhones and other smartphones are lucrative because they spend more each month browsing the Web, sending e- mail and watching video.
Verizon said 47 percent of mobile customers have smartphones, up from 44 percent in the fourth quarter. About 8 million customers, or 9 percent of the total, are using long- term evolution, or LTE, devices -- the latest wireless standard, Chief Financial Officer Fran Shammo said on an conference call.
Carriers are trying to fuel the use of such services, as the stagnating market forces them to attempt to squeeze more revenue out of existing customers. Average monthly revenue from contract users at Verizon Wireless rose to $55.43. Analysts projected $54.41, the average of six estimates compiled by Bloomberg.
“It was a mixed bag overall,” said Mike McCormack, an analyst at Nomura Securities in New York. While the average revenue per user was “pretty positive,” people choosing costlier data plans will probably look elsewhere to cut back, like on the voice part of their service plans, he said. This could eventually slow the growth rate of monthly bills, said McCormack, who has a “neutral” rating (VZ:US) on the stock.
Service revenue (VZ:US) in the wireless unit increased 7.7 percent to $15.4 billion, led by data. Wireless operating income margin, a measure of profitability, widened to 28.6 percent of sales from 25.8 percent a year earlier. The division’s earnings before interest, taxes, depreciation and amortization expanded to 46.3 percent from 43.7 percent.
In a bid to win more smartphone customers, the company plans to introduce a shared-data plan in a few months, Shammo said in an interview today. Under the plan, which will come in different price tiers, several family members and devices could be included in the same contract, said Shammo, who declined to offer specifics on prices or timing.
The plan may reduce the data costs of family members who are heavy mobile-device users. Still, revenue growth won’t suffer because such plans will encourage people to add more devices and use more data, Shammo said.
“Increased usage will get people to pay more for higher- tiered plans,” he said.
Verizon’s fixed-line business added 180,000 FiOS TV customers, compared to 192,000 added in the year-ago period. New FiOS Internet customers rose by 193,000, compared with 207,000 a year earlier. Verizon has stopped expanding the FiOS fiber-optic network into new areas to help control costs. The company has been working to sell more of the bundled phone, Internet and TV services to customers already within the reach of its network.
First-quarter net income rose 17 percent to $1.69 billion from $1.44 billion a year earlier. Capital expenditures were $3.57 billion, compared with $4.36 billion a year earlier.
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