Verizon Wireless Q3: 3.9 Million iPhone Activations, 1.1M New Customers

Apple iPhones made up 51 percent of the smartphones Verizon Wireless activated during Q3, even with iPhone 5S supply constraints.

Verizon Communications delivered better-than-expected third-quarter 2013 results Oct. 17, announcing that its wireless division, despite competing in a market that scrappier, smaller rivals (most prominently T-Mobile) have made increasingly competitive and fast-evolving, added 1.1 million net retail connections, 927,000 of which were postpaid retail customers (or more plainly, are on two-year contracts).

Verizon Wireless sold more than 1 million smartphones during the quarter, Chief Financial Officer Fran Shammo said during an earnings call, and activated more than 7.6 million smartphones. Apple iPhones accounted for 51 percent of those activations (3.9 million units), up from 46 percent a year before.

Apple began selling the iPhone 5S and 5C Sept. 20, though carriers were provided with limited numbers and not all models.

Shammo said Verizon experienced "iPhone supply constraints" that will cause most of its sales to roll over into the fourth quarter. While Shammo didn't offer a breakdown between 5C and 5S sales, the issue of constraints points to the majority being iPhone 5S models, as stores are all well-stocked with the 5C. (A month after its launch, Apple has reportedly cut back production of the iPhone 5C, a lower-cost, plastic-cased iPhone that's a small improvement over the iPhone 5.)

Verizon's overall revenue for the quarter was $30.3 billion, up 4.4 percent from a year ago, while operating income was $7.1 billion, up 30 percent.

Wireless revenue was $20.4 billion, up 7.2 percent; wireless service revenue increased 8.4 percent to $17.5 billion; and Verizon Wireless' average revenue per account—a metric in line with its shared-data wireless business model, versus the revenue per user that it used to track—was $155.74 per month, up 7.1 percent.

Verizon additionally sold more than 370,000 Internet devices, a category that includes tablets, and saw its postpaid customer base rise to 95.2 million during the quarter.

"We've delivered double-digit earnings growth in six of the past seven quarters," said CEO Lowell McAdam. "Verizon's strategic networks form a powerful distribution platform for future growth and innovation."

The company's Long Term Evolution (LTE) network—now covering 500 markets and 303 million people, and consistently the largest in the market—currently supports approximately 64 percent of its total data traffic.

Shammo said the carrier's plan to deliver voice over LTE (VoLTE) is "still on track," and that it will have a VoLTE smartphone, capable of running solely on its LTE network, to offer during the fourth quarter.

Technology Business Research analyst Eric Costa said that Verizon's 4.4 percent revenue growth and retail net additions "will be difficult for AT&T and Sprint to match" during their third quarter results. "In addition to leading the wireless operators," Costa wrote in an Oct. 17 research note, "Verizon will continue to improve its wireline segment through investments in fiber and copper backhaul upgrades."

T-Mobile, the nation's fourth-largest carrier, has introduced a number of strategies this year—including abandoning two-year service contracts, offering monthly device payment plans, enabling subscribers to upgrade devices more regularly and, most recently, offering free global texting and data roaming—that its larger rivals, Verizon included, have had to respond to.

"I can't tell you we don't lose customers to our competitors," Shammo said during the call, but suggested it was less-lucrative customers who are leaving.

"We do have some basic phone customers, and older 3G phone customers, and we're seeing them shift over to the lower-end pricing plans of our competitors. But we'll continue to get more competitive [about keeping them] in the fourth quarter," he said.

Despite the losses, Shammo said Verizon is still winning overall. "We're still gaining market share," he said.

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