Sorry T-Mobile, Verizon Is Still the Mightiest Carrier

Verizon iPhone

Verizon (NYSE:VZ) was able to leave the dismal results of the final quarter of 2012 behind thanks to healthy subscriber growth, with revenue from its bundled Internet, TV and phone services increasing close to 16 percent. On Tuesday, the largest U.S. wireless carrier reported earnings that narrowly beat analysts’ top line and bottom line estimates. Still, like its competitors, the company is under pressure in the wireless arena, competitive pressure that is largely being applied by T-Mobile (NYSE:TMUS) and its efforts to aggressively price its products to win over new customers.

However, unlike AT&T (NYSE:T) and Sprint (NYSE:S), Verizon has largely been able to avoid hemorrhaging subscribers to T-Mobile, partly because it has made some adjustments to the plans it offers. So, even though competition increased in the past quarter, customers and their wireless bills increased, allowing Verizon to report strong fourth-quarter results. After posting a huge loss of $1.93 billion in the fourth-quarter of 2012, which was attributed to rising pension costs and the infrastructural damage done by Hurricane Sandy, the company returned to profitability in 2013, and had a “strong record of successes” this year with four consecutive quarters of “double-digit earnings growth,” as the wireless carrier’s earnings press release proclaimed.

Swinging to a profit, Verizon reported a net income of $7.9 billion — or $1.76 per share — for the three-month period. Excluding an adjustment to its benefit and pension plans, earnings amounted to 66 cents per share. Revenue came at $31.07, a 3.4 percent increase from the $30.05 billion earned in the year-ago quarter. Comparatively, analysts expected the company to report adjusted earnings of 65 cents per share on revenue of $31.03 billion. “Verizon delivered a total return of 18.6 percent to our shareholders in 2013, while attracting more customers than our competitors and improving our financial performance,” said the company’s Chair and Chief Executive Officer Lowell McAdam in the earnings press release.

Despite the pressure from T-Mobile, Verizon added 1.6 million monthly subscribers, fewer than the record 2.1 million gained a year ago, but greater than the 1.3 million new subscribers analysts had anticipated. It ended the year with 102.8 million retail connections. Plus, the average wireless bill rose 7.1 percent to $157.21, alleviating worries that the company would be impacted from T-Mobile’s pricing changes. Verizon’s smaller rival has created cheaper plans, free international roaming, and buyout offers for customers that switch from other carriers — moves that has helped T-Mobile add more than 2 million monthly subscribers in the past three quarters. The company’s success make Verizon’s numbers look “stunningly good,” as Janco Partners analyst Gerard Hallaren told Bloomberg.

Wireless revenue rose 5.7 percent to $21.1 billion from a year ago. Now, more than 70 percent of the company’s retail contract base own a smartphone, which is an important designation to make as the devices bring the company far greater revenues. Verizon activated a total of 8.8 million smartphones in the fourth quarter, a drop of 1 million from the year-ago period. Of course, Verizon has made pricing changes of its own; the company has decreased the wait time for a phone upgrade to 30 days from six months for subscribers to its Edge program and, on Monday, it announced a cheaper “$60 Share Everything” plan, with unlimited voice calls, text messages, and 250 megabytes of data.

“I think good numbers from Verizon will mean bad news for AT&T,” Hudson Square Research analyst Todd Rethemeier told Bloomberg in an interview before Verizon’s results were released. “Someone is feeling the pressure from T-Mobile, and if it isn’t Verizon, then it might be AT&T.” But it still must be remembered that Verizon’s customer turnover rate increased 1 basis point to 0.96 from a year ago, a jump that indicates the company is feeling some pressure from its smaller rival, T-Mobile.

AT&T’s marketing has also had an impact on Verizon’s business. Once the company touted its network as the most reliable in the business, but after admitting last year that it had some network issues in its largest cities — which it was working to fix — AT&T was able to appropriate the “nation’s most reliable network” honor and add that core selling point to its list of attributes. Still, the company’s other businesses experienced growth as well. Verizon’s wireline unit saw revenue increase 6.4 percent to $3.8 billion, adding 126,000 new Fios Internet connections and 92,000 new Fios Video customers. The company finished 2013 with 6.1 million Fios Internet customers and 5.3 million Fios TV customers.

The fourth-quarter saw Verizon announce some important additions to its business portfolio. The company said it expects to close the $130-billion deal with Vodafone (NASDAQ:VOD) to acquire full ownership of Verizon Wireless on February 21. Through that purchase, Verizon will have full control of the largest and most profitable wireless carrier in the United States, which means the company will no longer have to share earnings with Vodafone. In addition, alongside its earnings results, Verizon told shareholders that it had agreed to acquire Intel’s (NASDAQ:INTC) pay-TV startup, which will bring to its arsenal the technology to offer video services over high-speed Internet connections. No further details — like the financials — were disclosed.

Verizon’s interest in Intel’s pay-TV platform was first rumored in early December, and an acquisition of such a service would give the wireless carrier an advantage in the market to deliver live television over the Internet. Verizon investors, who bid shares of the wireless carrier up nearly 15 percent in 2013, pushed the company’s stock up as much as 1.4 percent to $49.05 in early trading on Tuesday morning. But, shares of Verizon were trading down as much as 1.18 percent at $47.79 after the markets opened.

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