Apple iPhone, Android Double Verizon Profits as It Ramps Up 4G LTE

Robust demand for iPhones and Android devices helped Verizon achieve strong third-quarter earnings even after a two-week-long union strike and Hurricane Irene in August.

Consumer demand for iPhones and Android devices and its 4G Long-Term Evolution wireless network boosted Verizon's third-quarter performance, company executives said during its Oct. 21 earnings call.

While rival AT&T continued to sell more iPhones, Verizon wasn't that far behind. AT&T reported 2.7 million iPhone activations in the third quarter to Verizon's 2 million. Verizon activated 1.3 million new wireless users, including pre-paid and other customers, compared to AT&T's 2.1 million. Of the new customers, 882,000 were contract customers, more than double AT&T's 319,000 contract customers over the same quarter.

iPhone results were lower than the 2.3 million activations reported in the second quarter because many customers delayed their upgrade plans to wait for the iPhone 4S, which became available this month, after the quarter ended.

"We anticipate that the strong demand we're seeing for the new iPhone 4S will bring even more new customers," said Francis J. Shammo, CFO of Verizon.

Executives declined to say how many 4S models it had sold, other than the fact that it had sold out on the first day and there were back orders for more phones from Apple.

Verizon said 20 percent of its iPhone customers came from rival carriers, and 80 percent were current customers upgrading their handsets.

Verizon reported third-quarter revenues of $27.9 billion, up 5.4 percent from third-quarter 2010 revenues of $26.5 billion. Analysts had expected revenues of $27.88 billion. Third-quarter earnings doubled to $1.38 billion, or 49 cents per share, compared with $659 million, or 23 cents per share, in the same period in 2010.

The wireline division, which includes business and home telephone service as well as the FiOS television and Internet service, continued to shrink as customers cut the lines in favor of wireless service. While the division gained 1.3 million customers, operating revenue was down 1.3 percent from the third quarter of 2010, to $10.1 billion.

The decline was also affected by Hurricane Irene and the two-week labor strike in August, McAdam said. The company spent $250 million on "storm-related repair costs," according to McAdam. The company is still negotiating with the union, but executives declined to comment on the state of the discussions.

"We faced significant challenges in recent months, yet delivered results that keep us on track to meet our 2011 earnings and revenue guidance, with great momentum expected entering 2012," McAdam said.

The 4G Long-Term Evolution wireless network is growing more quickly than anticipated. The 4G LTE network was available in 165 markets and covered a population of more than 186 million, the company said. Of the 5.6 million smartphones Verizon sold during the third quarter, more than half were Android devices, according to Shammo. Verizon also sold a total of 1.4 million LTE devices, half of which were smartphones and the rest were "Internet data service," such as mobile hotspot devices and tablets, he said.

"We are seeing increasing customer demand for smartphones, tablets and Internet devices that take advantage of the superior speeds of our LTE network," Shammo said.

About 39 percent of the devices running on Verizon's wireless network were smartphones, and nearly 95 percent of its product portfolio was 4G capable, Verizon said. The expensive data plans required for the smartphones helped push average monthly revenue per contract subscriber up 2.4 percent to $54.89, Shammo said.

Verizon's cloud investments, such as the Terremark and CloudSwitch acquisitions, are beginning to pay off for the company. Global enterprise revenues were $3.9 billion, a 2.1 percent increase year-over-year since the third quarter of 2010. Strategic service revenues were up 15.6 percent and represent about half of Verizon's global enterprise revenues. Terremark added about $100 million to revenue this quarter, according to Shammo.

"We now have a unique set of capabilities to combine solutions around the network, data center, security and cloud infrastructure that allowed Terremark to achieve record new sales bookings in the third quarter," he said.