Verizon Conference Call: Two Million iPhones Sold Before 4S Launch
Verizon just reported its quarterly earnings less than an hour ago, and while the results are initially encouraging on the earnings front, the number of subscriber additions — at 882,000 — was below some expectations.
We’re also waiting on any further color that comes from Verizon’s wireless business on the number of iPhone 4S units sold so far. AT&T revealed that it had sold one million as of Tuesday. Verizon provided indication of how well its iPhone 4S sales are going, but said it sold two million older iPhones during the quarter. All that and more you can find in my notes from the conference call, below:
5:27 am: So I never thought I would miss the annoying light-FM music that plays before other earnings calls. But I am. I’m hearing Verizon Wireless radio ads instead.
Anyway, good morning from New York. The conference call is due to start in less than two minutes.
Here are a few things I’m pulling from the slide presentation. Verizon sold 5.6 million smartphones in the quarter. No word yet on the iPhone versus Android versus BlackBerry mix. Perhaps there will be some color on that during the call.
Also, 1.4 million LTE devices were sold, and 39 percent of its subscriber base uses smartphones.
All that explains the 20 percent surge in data revenue.
Okay, the call is under way.
5:33 am: Some other things from the presentation: FiOS amounts to 59 percent of consumer revenue. There are now four million FiOS subscribers, up by 131,000 subscribers.
5:34 am: Here’s the result: 49 cents per share EPS, a doubling of EPS over the year ago.
And now we have CFO Fran Shammo. Solid execution and earnings performance. Would have been better had it not been for the hurricane and that strike. Tough quarter.
A 2.6 percent dividend increase pushes it to $2 a share. It’s the fifth consecutive year the board has authorized a dividend boost.
Increasing customer demand for smartphones, tablets and Internet devices. (Tell me something I didn’t know.)
Shammo: Naming off some enterprise customers and mentioning Terremark and CloudSwitch, two companies it acquired in recent months.
Hurricane caused severe troubles in wireless business. That and the strike created a severe backlog in the FiOS business. This hurt the EBITDA margin by 250 basis points. Still, the overall wireline revenue mix increased.
5:39 am: $27.9 billion in consolidated revenue.
49 cents in EPS includes seven cents of adjustments from the storms and strikes.
Cash flow: FCF up $1.9 billion to $5.1 billion. Capex was $3.6 billion slower sequentially. $1.8 billion of that was in wireless.
Second-half spending will be lower than in the first half. 4G service is in 165 markets.
186 million 4G pops.
Wireless business: An impressive quarter. Highest retail service revenue growth since 2009, up 6.9 percent. $17.7 billion, up 9 percent year on year. Retail up 6.9 percent.
Total data revenue was 6.1 billion, and amounts to 40 percent of wireless revenue.
Retail wireless customer growth up 8.6 percent.
$50 unlimited plan will help retail prepaid presence.
Again with blaming anticipation of the iPhone 4S for slower than expected customer adds.
Churn metrics .94 percent. (That’s lower than AT&T, for sure.)
Two million iPhones sold during the quarter.
Sold 1.4 million 4G LTE phones.
Internet device ARPU is $49. (What do you know — that’s exactly what I pay every month for my Mi-Fi service.)
I missed a key metric from a little earlier: Shammo said that about half of smartphones were Android phones.
Margins in wireless are going up. EBITDA margin was 48.7 percent, up from 45.4 percent.
Now on to the wireline business.
Total wireline revenue was steady at $10.1 billion. Down slightly, both year on year and sequentially.
5:50 am: Storms and strike cost $250 million in the quarter on the top line. Consumer was $3.4 billion.
FiOS Internet subscribers to 4.6 million, 35 percent penetration of homes open for sale. 8.6 million broadband connections.
Addition of Terremark, the hosting company Verizon bought earlier this year, added $100 million in revenue.
Some changes in pricing to voice packages on the wireline business affected revenue by about $90 million year over year.
Summing up and getting ready for Q&A section.
5:55 am: And here’s the Q&A.
Question about subscriber adds on the retail side in wireless, and then margin pressure in the wireline business.
Shammo: The retail service revenue and the retail post paid from 6.2 to 7.2. I said we were on a glide path to accelerate our ARPU growth, and I continue to see that. We had a $61 million decline. It had to do with AllTel traffic moving off our networks.
Shammo: When you consider the storms and the backlog that we have on the FiOS side and the enterprise side, we will increase the margin. There will be an echo effect in booking that revenue. Terremark had an outstanding quarter. That will flow into the fourth quarter. We started to recover from the storm in the final weeks of the third quarter. Starting to eat into the backlog. It’s about how quickly we can get there.
Question from UBS: Give us more detail on five cents of storm-related costs. More expenses in Q4?
Shammo: As you know, this was an unprecedented storm. There was damage to network facilities. We had 4,000 poles down, damaged countless cables, 820,000 more dispatches in our core, 254 (?) central offices running on generators. The team has done a great job getting this back to normal. We recovered late in the quarter, but there will be a trickle into fourth quarter.
Question from J.P. Morgan: With wireline margins dragging a bit and wireless margins probably down in the fourth quarter, what to expect? Also, what are you seeing from customers, given the economy?
Shammo: Overall, from an economic perspective, we are seeing some impact. The start-ups have not been created from an economic standpoint. In the enterprise, first and second quarter, we showed growth without Terremark. I think we’ll improve in the fourth quarter; from an overall enterprise perspective, it’s all about cloud services. Overall on EPS, given this event in Q3, we will hit our guidance.
Question from Morgan Stanley: Update on labor negotiations? What might impact be on fourth quarter, given that?
Shammo: We continue to speak to the union. We said this would be a marathon, not a quick negotiation. We need cost-structural change. It is not sustainable with 100 percent benefits and 100 percent pensions. On the fourth-quarter charge, it’s too early to tell.
6:05 am: Question from Wells Fargo: We’ve all seen iPhone 4S from AT&T. But as we look at the next generation of the device, you have a clear opportunity for upgrades.
Shammo: We’re extremely pleased. We ran out the first day. We continue to be on allocation from Apple. Not going to get into volumes. (No number!) The ratio of upgrade and new has not changed pre- and post-launch. Third-quarter performance will continue. From an overall device perspective, the lead we have in LTE is unsurpassed by any competitor. More 4G this quarter than last quarter. If you look at Internet devices, 95 percent are 4G LTE. High-end users are moving to 4G.
6:11 am: Question from Bank of America: Are you able to comment at this stage of the game on any impact stemming from this intercarrier compensation refresh? Second: You called out the AllTel roaming impact. What’s your impact from Sprint?
Shammo: We are fully supportive of the regulatory change the FCC is heading up. Complete overhaul of universal service subsidy, we are all in favor of that. We have been a leader in the intercarrier comp; from a benefit standpoint, we are a net payer, but there will also be some put-and-takes in our portfolio. We’ll share them later.
The impact of Sprint is now near the numbers being reported. Our revenue from Sprint for roaming is not material.
6:17 am: Question from Nomura: AT&T is out with iPhone 3GS for free and lower-priced iPhone 4. Any comment about competitive landscape with that? What is the behavior of those customers with the iPhone 4?
Shammo: As we have said, when we compete, we outperform the industry. When we compete head to head, we win that competition. The other thing is that when you look at the net adds, as far as 4 and 4S, the 4 can be upgraded to 95 percent of the features.
Question from Piper Jaffray about upgrade rates. And another about prepaid versus postpaid.
Shammo: The upgrade rate is steady, but was down in anticipation of the new iPhone. We eliminated the New Every Two program, but we haven’t seen much of a benefit yet. We’ll see that financial benefit next year.
6:22 am: Question from Credit Suisse: Are we looking for $9.6 billion in Capex this year? And where does that go? He’s specifically asking about wireless Capex.
Shammo: The plan for wireless is $8.9 billion on wireless. Nothing on next year.
6:25 am: One more question: BMO Capital asks about FiOS scaling.
Shammo: From an overall perspective, the biggest cost of FiOS is content. The profitability increased. The operating efficiency of FiOS is there. The issue for FiOS is to move people off copper to FiOS.
And that concludes the conference call.