Verizon Swings to Profit in Q2 with Strong Wireless Growth
Verizon’s Q2 profit came in at $1.6 billion versus a loss of $1.2 billion in the year-ago quarter. It added a total of 2.2 million subscribers, including 1.3 million postpaid customers, bringing the total connections to 106.03 million.
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Verizon activated 2.3 million iPhone 4 devices in the quarter versus 2.2 million in the previous quarter when it just started selling them. The carrier sold 1.2 million LTE smartphones and Internet devices during the quarter as it continues to roll out its LTE network. It expects the 4G network, which is currently available in 102 U.S. markets, to be available in more than 175 markets covering more than 185 million people by the end of 2011. LTE speeds have been consistent, Chief Financial Officer Francis Shammo said during the company’s earnings call Friday. But “it’s too early to really get a good average on what those speeds will be amongst all the different devices that we have there,” he said.
Verizon President and COO Lowell McAdam said he’s pleased with the evolution of Verizon’s partnership with Vodafone. “We are clearly moving from a purely financial partnership to an operating partnership,” he said. The companies have aligned their products and technology roadmaps and they're beginning to purchase infrastructure together, he said. All these moves would improve both carriers’ revenue and cost profiles, he said. Meanwhile, as Verizon started talks to replace three-year union contracts set to expire Aug. 6, it’s clear that “some things do need to change,” Shammo said, citing pressures on wireline business. He acknowledged that the company has asked for changes in areas like work rules and healthcare plans: “I am optimistic that we will be able to work something through that will be fair and equitable to both sides.”
The biggest wireline gains in the quarter came from FiOS and business cloud services. FiOS generated about 57 percent of consumer wireline revenue in Q2, up from 48 percent from the year-ago quarter. The company added 189,000 net new FiOS Internet connections and 184,000 net new FiOS TV connections. Verizon had a total of 4.5 million FiOS Internet and 3.8 million FiOS TV connections at the end of the quarter. As expected, wireline voice lines declined 7.9 percent year-over-year. Verizon, which acquired cloud provider Terremark in April, saw sales of strategic services, including Terremark’s cloud services, security and IT, and strategy networking increase by 17.8 percent year-over-year. The wireline business “was less of a drag than it has been in the past,” Bernstein Research analyst Craig Moffett said in a research note.
CEO Ivan Seidenberg called Q2 one of the company’s best quarters since the 2008 economic downturn, in terms of earnings growth and the acceleration of revenue growth. In the first six months of 2011, Verizon’s capital expenditures totaled $8.9 billion versus $7.6 billion in the first half of 2010. Verizon said it continues to expect full-year 2011 capital spending to be similar to its 2010 investment of $16.5 billion.