Verizon on Tuesday shared a mixed bag of second quarter earnings results, posting revenue and net addition figures that failed to meet expectations alongside a profit that beat estimates.
Total operating revenue of $30.5 billion was down 5.3 percent year over year and missed Wall Street expectations of $30.9 billion by around 1.4 percent. Consolidated earnings per share of 17 cents was down drastically from $1.04 the year prior, weighed down in part due to the seven-week strike of wireline union workers in April and May.
Wireless revenues of $21.7 billion in the second quarter were down 4 percent year over year, which Verizon attributed to customers choosing unsubsidized device payment plans. Service revenues plus device payment plans, however, were up slightly to $19.1 billion.
Verizon also had some success growing revenue from its Internet of Things (IoT) ventures, pulling in a 25 percent year-over-year increase in revenue to hit $205 million.
Net handset additions of 86,000 were up drastically from a loss of 8,000 in the March quarter, but fell well short of Wells Fargo’s estimate of 191,000 net handset additions. Verizon recorded overall retail postpaid net additions of 615,000, down 45.6 percent from more than 1.1 million the year prior. The carrier also lost 30,000 retail prepaid net additions, but that figure was vastly improved from 126,000 losses in the same period last year.
“The weaker wireline results are not a huge surprise given the many moving parts of the quarter (labor issues, sale of higher margin properties to FTR),” Wells Fargo analyst Jennifer Fritzsche wrote in a Tuesday research note. “However, the weaker wireless subs is somewhat surprising. That said, with 47 percent margins and already very large scale (110MM+ subs), VZ may be taking a similar stance to T and not chasing subs at any cost.”
At the close of the second quarter, Verizon said it had 113.2 million retail connections, a 3.3 percent year-over-year increase.
Verizon said 67 percent of phone activations in the second quarter were made on device payment plans. 4G LTE devices now account for 82.5 percent of retail postpaid connections, the carrier said.
Retail postpaid churn of .94 percent was up slightly from .90 percent in the year ago period, as was overall retail churn of 1.19 percent from 1.18 percent in June 2015. The carrier’s postpaid upgrade rate remained low, at 5.4 percent.
Capital expenditures of $2.8 billion were down 9.9 percent from $3.1 billion in the same quarter 2015.
McAdam talks 5G
During Tuesday’s earnings call, Verizon CEO Lowell McAdam said about 50 percent of Verizon’s spectrum today is dedicated to 4G LTE and said with the refarming of spectrum from its 2G networks, the carrier has “plenty of headroom.”
McAdam said Verizon’s efforts to densify its 4G network are setting it up perfectly for the deployment of 5G with millimeter wave technology. The carrier’s 5G deployments will also be helped by Verizon’s recent deal to lease 28 GHz spectrum from XO Communications, which McAdam said was approved by the Federal Communications Commission earlier this week. When the time finally comes to convert to 5G, McAdam said Verizon should be able to upgrade with “very little incremental cost.”
So far, McAdam said Verizon’s 5G trials have yielded speeds above 1 gigabit per second over 500 yards. McAdam said theoretically the 5G technology should be able to reach 1,000 meters between cell sites, but said the carrier is in the process of testing that in real world environments with obstructions from vegetation and topography.