Verizon swings to profit on 4G LTE, iPhone strength

The carrier says its wireless arm sold 1.2 million 4G LTE smartphones and data devices and activated 2.3 million iPhones.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
3 min read

Verizon Communications swung to a second-quarter profit as consumers flocked to its speedier 4G service, the carrier said today.

Verizon reported a second-quarter profit of $1.61 billion, or 57 cents a share. A year earlier, the company posted a loss of $1.19 billion, or 42 cents a share due to charges made related to its job cuts. Revenue rose 2.8 percent percent to $27.54 billion.

Wall Street analysts had expected earnings of 55 cents a share on revenue of $27.42 billion, according to a survey taken by Thomson Reuters.

"We view the company's results as favorable as Verizon continues to demonstrate its leadership position in wireless with industry leading metrics," said Michael Nelson, an analyst at Mizuho Securities.

Verizon Wireless, which is jointly owned by Verizon and the U.K.'s Vodafone Group, netted 1.3 million new contract customers, considered the most valuable segment because they are committed to two years of service and generally spend more per month. AT&T, in comparison, added 331,000 such customers, although it was hurt by the integration of two wireless assets.

"We have great momentum in wireless, and we continue to build on that strength," Chief Financial Officer Fran Shammo said during a conference call.

A major driver was the 2.3 million iPhones activated in the second quarter, a hair higher than in the first quarter, when it was on sale for only seven weeks. Shammo said roughly 23 percent of the iPhone activations came from new customers. The figure, however, is below the 3.6 million iPhones AT&T sold. Like Verizon, AT&T sells the iPhone 4. But AT&T also sells a cheaper $50 iPhone 3GS, which has attracted customers looking for a bargain.

Shammo, in a partial shot to AT&T's past problems, said the iPhone was one of the top-performing phones in terms of voice quality with a low rate of dropped calls and a high rate of customer satisfaction.

Also significant, the company sold 1.2 million 4G LTE smartphones and data devices, demonstrating the draw of its next-generation network. In the quarter, Verizon launched the Samsung Charge and LG Revolution.

As I wrote here, Verizon was expected to have a standout quarter thanks in part to its first full quarter with the iPhone, but also the aggressive marketing of its 4G LTE network. The network is considered the fastest in the U.S., and has gave it an edge when going after consumers.

Verizon Chief Operating Officer and President Lowell McAdam, however, acknowledged that the company is a quarter behind in where it wants to be in terms of the speed of smartphone adoption by its customers. The company said that 36 percent of its contract base use smartphones; it is targeting half the base by the end of the year.

He cited a delay in the next version of the iPhone 5 as the primary reason behind the slower smartphone growth, but added he expects much stronger adoption in the second half.

"Our fourth-quarter (4G LTE) lineup will be really robust," McAdam said. "It's the best fourth-quarter line-up I've seen."

Shammo said 69 percent of its new subscriber additions came from either the iPhone or a 4G LTE device.

Earlier this month, the company moved to a tiered-pricing structure. McAdam said he sees some impact as heavy users shop for better plans, but doesn't think it will be significant.

"I don't think there will be tremendous disruption," he said.

Separately, the company said today McAdam will take over as chief executive on August 1. He takes over for Ivan Seidenberg, who will retire as CEO but retain his chairman position.

Updated at 6:36 a.m. PT: with additional comments from executives and analysts.