Verizon Posts Droid Wins, Profit Losses

Verizon Wireless reports it earned revenue of $26.8 billion during the second quarter but saw mobility profits drop, due to a number of one-time factors. Still, wireless revenue was up and more Android phones are on the way.

Verizon Wireless lost $198 million in the second quarter, due largely to several one-time issues, officials said, but the company is continuing to add wireless customers as it expands its family of Android-based Droid smartphones.

Verizon officials also announced July 23 that the company generated $26.8 billion in revenue during the quarter.

The one-time factors accounting for the loss, and making for an untidy quarter, included a voluntary incentive program for union employees, approximately 66 percent of who left the Verizon payroll in late June or early July; integration costs and taxes associated with Verizon's 2009 acquisition of Alltel; and charges relating to the 4 million access lines that were spun off and merged with Frontier Communications July 1. Verizon had a charge of $2.3 billion in connection with buyouts of about 10,000 employees.

During a July 23 conference call with media and analysts, executives instead focused on cash flow, which was up 76.7 percent year over year, and the carrier's wireless results. During the quarter, Verizon added 1.4 million net new customers, which-accounting for the removal of net 2.1 million customers related to the Alltel acquisition, and making for another bit of messiness-brought Verizon's total customer base to 92.1 million.

This kept Verizon ahead of its closest U.S. competitor, AT&T, which during a quarterly earnings call the day before shared that its customer base had climbed with help from Apple's iPhone to 90.1 million subscribers.

Not having an iPhone of its own-at present, anyway; some analysts say Verizon will get an iPhone in January 2011-executives have instead put their energies into Verizon's "Droid franchise," which has been "a great success," Chief Financial Officer John Killian said during the call. "We've had a steady stream of devices featuring the Android operating system since the first Droid was introduced last fall. To date, we have six devices with multiple manufacturers in our current device lineup, with more to come."

Verizon introduced the Droid Incredible late in the second quarter, and the Droid X July 15. While successful with consumers, both phones are currently in short supply, a fact that Killian downplayed as being a matter of "more timing than anything else."

Suppliers that cut back on production during the global recession in 2009 are now having a difficult time keeping up, and, likewise, competitor Sprint is having a difficult time keeping the HTC Evo 4G-the country's first 4G-enabled smartphone-in stock. However, Killian continued to downplay the situation, saying later in the call that Verizon didn't have a big supply problem, "just a little delay."

Verizon's total data revenues for the quarter grew to $4.8 billion. This success, Killian said, is based on a strategy of taking advantage of the growing smartphone category.

"Our approach is to support a number of different operating systems and platforms, and to offer a robust lineup of devices, which gives us the opportunity to not only attract new customers, but upgrade our existing customers," Killian said. He added that by the end of the quarter, 35 percent of retail postpaid customers had a smartphone or multimedia device, which was up from 31 percent at the end of the first quarter and 26 percent at the end of 2009.

Feeding the carrier's smartphone growth, Killian said Verizon's planned 4G LTE (Long-Term Evolution) network is "on schedule" for a fourth-quarter rollout. By the end of the year, Verizon plans to cover 25 to 30 markets, before expanding 4G coverage to its entire 3G network by the end of 2013.

Given Verizon's current smartphone position, Killian said, "I can't say enough about the opportunity we see ahead."