Why things are looking good for Verizon

When earnings report start in two weeks, Verizon is expected to be the standout among big carriers. CNET explains why.

Verizon Wireless is expected to end up as the carrier with the most momentum in the second quarter when the dust settles after earnings reports, which will begin in earnest in two weeks.

4G service and smartphones such as the HTC Thunderbolt are seen as sparking Verizon's growth in the second quarter. Verizon

An impressive quarter for Verizon's version of the iPhone 4, along with strong interest in the company's speedier 4G wireless network, helped it add an estimated 1 million customers. Best of all, they're the kind of customers willing to sign up for long-term contracts. A recent study by Localytics showed that Verizon already accounts for a third of all U.S. iPhone 4s, an impressive statistic considering the phone's February debut.

Certainly, Verizon can thank the iPhone for its expected strong showing. But there's another factor: an established, speedy 4G network. Sprint Nextel saw similar benefits from its 4G network in past quarters and, no surprise, AT&T has moved up its timetable for deploying its own next-generation network, which uses a technology called Long-Term Evolution.

Verizon's shiny new wireless network unsurprisingly drew in a lot of curious consumers. By comparison, Verizon's rival carriers saw only modest customer growth, while a few lost customers in the period. Sprint, which also has a 4G network--that doesn't look quite so superior anymore with Verizon in the game--is expected to lose contract customers.

Regardless of whatever losses Sprint might experience, 4G networks remain crucial to the carriers' efforts to lure customers, particularly customers who are willing to sign up for long-term contracts. Such customers are highly coveted because they're less likely to leave the carrier and more willing to spend additional money each month for the best smartphones and service plans. Prepaid customers, on the other hand, aren't bound by contracts and can leave anytime, and they're more likely to look for the best price regardless of carrier.

Robert W. Baird analyst William Power estimates that Verizon added nearly 1 million such customers in the period, calling the company "the standout in wireless." He added that AT&T likely posted a modest gain, with others such as Sprint and T-Mobile USA losing customers.

On the device side of things, the iPhone isn't the only bright spot in Verizon's lineup. Analysts also note the company's selection of 4G phones, including the HTC Thunderbolt and the Samsung Charge.

Though Verizon hasn't provided updated sales figures for the second quarter, it said in April that 260,000 Thunderbolts were sold in the phone's first two weeks of availability. BTIG analyst Walter Piecyk said the Charge has also sold well in the second quarter.

Verizon's confidence in its network shows in its recent switch to a tiered data model for both its 3G and 4G services. When AT&T moved to usage-based pricing, it offered a low-end plan to attract new smartphone users and value-minded customers. Verizon offers no such option, and offers only higher-end plans more expensive than its previous $30 unlimited data offer.

AT&T, on the other hand, is expected to show modest customer growth in the period, helped both by the iPhone 4, as well as its lower priced $50 iPhone 3GS. While many focus on its higher-end offerings, the company's cheaper alternative has helped it withstand Verizon's iPhone and 4G pushes. Piecyk says that with the next version of the iPhone expected to run on its faster HSPA+ network, AT&T will boast both the fastest and the cheapest iPhone.

"That positions them well in the second half," Piecyk said.

Acknowledging the importance of staying in the 4G race, AT&T rebranded its HSPA+ network 4G and has been upgrading its infrastructure to allow for a faster connection. The company, however, has been slower with its 4G LTE network, and it plans to launch in five cities this summer, even as Verizon continues its expansion.

Sprint and T-Mobile tussled heavily on price in the quarter, yet neither are expected to show significant growth in the contract customer area. Sprint, seeking to capitalize on the potential concern over T-Mobile getting swallowed up by AT&T, offered a $125 credit to anyone willing to switch to its service. T-Mobile retaliated with a $200 credit of its own.

While Sprint has benefited from its 4G push in the past, the dearth of new 4G phones in the period hurt the company. The company also was slow to push its early advantage in 4G, and has now let its rivals dilute the benefit with their own speedier offerings.

T-Mobile, meanwhile, has been expanding the coverage of its speedier network and has cut its prices, but it continues to be plagued by concerns over its pending acquisition. Both Sprint and T-Mobile were also hurt by the lack of the iPhone, though speculation has mounted that Sprint may get the Apple device.

The move to 4G has also benefited MetroPCS, which doesn't sell service on a contract, but has seen strong adoption thanks to its early embrace of smartphones. Conversely, the lack of 4G from Leap Wireless, as well as competitive pressure, has analysts concerned about its growth, especially since the second quarter is typically a weak one for prepaid providers.

The divergent expectations for MetroPCS and Leap show the importance of getting on the 4G track early. That's a lesson even a major carrier, including AT&T, needs to remember.

 

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