Verizon's wireless biz keeps earnings strong

The telecommunications giant announces strong growth in the fourth quarter. Growth of its wireless business offsets more declines in its traditional telephone business.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
4 min read

Updated 8:32 a.m. PST with information from conference call.

Despite the troubled economy, Verizon Communications managed to post a 15 percent increase in profit for the fourth quarter of 2008, thanks once again to growth in its wireless business and new fiber to the home services.

The company reported net income of $1.24 billion, or 43 cents a share, up from $1.07 billion, or 37 cents a share, for the same period a year ago. Revenue was up 3.4 percent, to $24.65 billion. Wireless sales jumped 12.3 percent to account for more than half the company's total.

New subscriber growth slowed down for Verizon during the quarter as it only added 1.4 million new subscribers. By contrast, it added 2.1 million in the third quarter of 2008.

Even though Verizon Wireless saw fewer new subscribers during the quarter, the subscribers it has were spending more money on services. COO Denny Strigl noted that the average revenue per user increased for the 11th consecutive quarter and was up to $51.72, a 1.4 percent increase compared to the fourth quarter of 2007.

Much of the growth that Verizon is experiencing comes from sales of data services. The average revenue per user for data services was up 27.9 percent for the quarter compared to the same quarter a year ago.

In total, data revenues increased 44 percent compared to 2007, the company said. And the data revenue in the fourth quarter accounted for 26.8 percent of all service revenue for Verizon wireless, a 21.3 percent increase from a year ago.

"The growth drivers are all performing for us (in wireless)...so there is no evidence of the market slowing or of customers trading down plans or devices (due to the economy.)"
-- Verizon COO Denny Strigl

And data revenue is expected to grow, as the company also reported that more than 65 percent of its retail customers now own 3G handsets. Specifically, more customers are buying more expensive handsets, such as smartphones, that require data plans.

Strigl, said during a conference call, that 37 percent of new retail devices sold during the quarter were smartphones. The company launched the much anticipated BlackBerry Storm during the quarter. This touch-screen device is supposed to be Verizon's answer to the iPhone. Verizon didn't say how many units it has sold during the quarter, but executives have said they are pleased with the product. Customers on the other hand, have not been so happy. Many people have complained about software and hardware bugs in the phone.

"The growth drivers are all performing for us (in wireless)," Strigl said. "So there is no evidence of the market slowing or of customers trading down plans or devices (due to the economy.)"

With the completion of its merger with Alltel, Verizon managed to surpass AT&T as the No. 1 wireless carrier in the United States. In total, Verizon Wireless, a joint venture of Verizon Communications and Vodafone, now has more than 80 million customers. AT&T has about 75 million wireless customers.

On the wireline side of the business, Verizon saw more declines in its traditional telephone business, as customers cut the cord to use voice over Internet Protocol services or their cell phones. But the company got a big boost from its Fios TV and broadband services.

During the quarter, Verizon beat analyst expectations and added 303,000 Fios TV customers and 282,000 Fios Internet customers. Analysts had expected the company to add 250,000 Fios TV customers and 250,000 Fios Internet subscribers. Verizon this marked the most new customers for these individual products in a single quarter.

Overall, Verizon CEO Ivan Seidenberg said he is optimistic about the company's outlook for 2009. While he admitted that the company faces "a difficult economic time," he also said that Verizon expects to continue it momentum and sharp execution into the next year.

"We think we had a very solid quarter and an excellent year," Seidenberg said. "And we see no reason why the momentum we have developed in 2008 should not continue in some way in 2009. We don't have perfect visibility in the economy, so the level of success could be tempered. But we think we will perform well absolutely and relatively."

While most of the business seemed unaffected by the economic downturn, executives noted they are seeing a slowdown in the enterprise business, as companies layoff employees and cut costs. Specifically, Verizon execs say they have noticed a decline in wireless data card subscriptions and long distance usage.

To make up for this lag, Verizon expects companies to purchase more managed services to save costs. And Strigl announced a strategic partnership with consulting firm Accenture.

Executives also said the company plans to push forward with new initiatives. Verizon will start testing its new 4G network that will be built using LTE technology, later this year. Strigl said that customers could expect commercial services over this network to begin in the first half of 2010.

The new 4G network will use spectrum that Verizon acquired in the Federal Communications Commission's 700 MHz auction. That spectrum was supposed to be freed up February 17, 2009 when TV broadcasters were mandated by law to switch from transmitting TV signals in analog to only transmitting them in digital. On Monday, the U.S. Senate passed a bill that would delay the transition until June. But Strigl said the delay, should it become law, will not affect the roll out of the 4G network.