Verizon Q3 Wireless Customer Net Adds Fall 57%

Q3 revenue and net profit were also down, due substantially to the sale of some local landline operations in the quarter.

Verizon, Q3 earnings, mobile carriers, Sprint, AT&T, T-Mobile, smartphones

Verizon's net postpaid wireless customer adds in the third quarter of 2016 fell 65.7 percent to 442,000 from a year prior when it added 1.2 million net postpaid customers.

Third-quarter revenue fell to $30.9 billion from the $33.2 billion posted a year ago, while net income declined to $3.7 billion from $4.2 billion in 2015, the company announced on Oct. 20 in an earnings call with analysts. The 6.7 percent drop in revenue and the 10.2 percent drop in net income, however, was largely due to the sale of some wireline operations. On a non-GAAP basis, third-quarter revenue would have fallen by only 2.9 percent had the wireline revenues remained, the company stated.

Basic earnings per share came in at 89 cents for the third quarter, a 10.1 percent drop from the 99 cents per share earned one year ago.

Verizon's wireless revenue fell 3.9 percent in the third quarter to $22.1 billion from $23 billion a year ago, while wireless operating income fell 0.3 percent to $7.6 billion from $7.7 billion in last year's third quarter.

The company did see its wireless connections increase to 113.7 million in the third quarter, a 2.6 percent rise from 110.8 million a year ago.

The precipitous 65.7 percent drop in the number of retail postpaid net adds in the third quarter compared with a year ago will be something the company tries to resolve in the present quarter. The 442,000 retail postpaid net additions that did come to Verizon include some 357,000 new 4G LTE smartphones, the company said. The company's retail postpaid churn rate increased to 1.04 percent for the quarter, up from 0.93 percent one year ago.

"Verizon continues to deliver strong financial and operational results in highly competitive markets while positioning itself for future growth," Lowell McAdam, chairman and CEO of the company, said in a statement. "While we transform our company in a challenging environment, we have maintained the financial flexibility to invest in our industry-leading networks to better serve customers, add scale to bring innovation to the mobile media and internet of things (IoT) markets, and increase dividends for a 10th consecutive year."

In July, Verizon announced a $4.83 billion deal to acquire Yahoo, which is still in the process of being completed.

Several analysts told eWEEK that Verizon's third-quarter earnings numbers showed some surprises, particularly the dropoff in net customer adds compared to past quarters.

"It's never a good thing for a carrier that generates most of its revenue from consumer wireless to lose net smartphone subscribers," said Bill Menezes, an analyst with Gartner. "Verizon can weather it, but rising churn and net postpaid phone losses had become alien to the company" in the past.

The figures appear to show that "value-oriented subscribers are going somewhere else" to buy their mobile services, he said. "Verizon may not care about retaining them, but it needs to make up the lost revenue in areas such as tablets and the internet of things. Clearly, it did not during the third quarter, although IoT revenue continues to grow at a sturdy pace."

Overall, the big four main carriers are in a "pretty transformative mode right now," said Menezes. "Verizon [is] pursuing Yahoo, AT&T [is] reportedly looking at an acquisition of Time Warner. I think we can expect to see continued slow or flat growth until they get out of this phase, which could take some time."

Another analyst, Rob Enderle, of Enderle Group, said Verizon's third-quarter results were "not great," and most likely show erosion to competitors, including T-Mobile. "Some of this may be offset in the coming quarter, thanks to their exclusive deal with the Google Pixel," but it will "likely put even more pressure on them to either walk away from Yahoo or successfully negotiate a lower price."

Jan Dawson, chief analyst at Jackdaw Research, told eWEEK, "Verizon continues to face several headwinds at once—it has reduced its landline footprint significantly in recent years and has also dramatically slowed the rollout of its FiOS services, both of which are limiting its upside in both broadband and TV services."

On the wireless side, the company is "seeing the ongoing impact of intensifying competition as both T-Mobile and Sprint compete more aggressively for a fairly static base of customers with pricing and promotions designed to lure customers from the competition," said Dawson. "Verizon lost postpaid phone subscribers in a third quarter for the first time ever, likely as a result of both increased direct targeting from Sprint and more general competition from T-Mobile and AT&T. Verizon is the only carrier that continues to refuse to offer unlimited data plans to new customers under any circumstances, and it will be interesting to watch whether it can hold out indefinitely on that point."