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Verizon wireless margin dips on higher hardware sales

Verizon wireless margin dips on higher hardware sales

Verizon reported another quarter of double-digit earnings growth in Q3, as it passed the milestone of over 100 million retail postpaid mobile connections. Earnings rose to USD 0.89 per share from USD 0.78 a year ago, driven by the buy-out of Vodafone’s stake in Verizon Wireless. Operating revenues increased 4.3 percent year-on-year to USD 31.6 billion and were up 4.9 percent excluding divestments. 

The US operator maintained its outlook for around 4 percent revenue growth over the full year, but said the EBITDA margin will depend on the performance of the wireless activities in Q4. The company expects to reach the high end of its capital expenditure forecast of USD 16.5-17.0 billion this year, after spending USD 12.6 billion in the first nine months of 2014. The extra spending will go to optimising the LTE network, including the deployment of AWS1 spectrum, which already covers over 400 markets. 

At the Wireless division, quarterly revenues rose 7.0 percent year-on-year to USD 21.8 billion, driven by hardware sales and a 4.8 percent increase in service revenue. Verizon added a net 1.52 million retail postpaid connections in the three months, for a total 100.1 million at the end of September. Total retail connections were up 4.9 percent from a year ago to 106.2 million. 

The operator averaged 2.8 connections per postpaid customer account, and average revenue per account totaled USD 161.24 per month, an increase of 3.5 percent year-on-year. A rise in costs, driven by the higher hardware sales, led to a drop in the wireless EBITDA margin to 49.5 percent of service revenue, from 51.1 percent a year ago. Verizon sold 457,000 postpaid phones in the quarter and 1.1 million postpaid tablets. 

In wireline, Verizon’s revenues fell 0.8 percent year-on-year to USD 9.6 billion. Consumer revenues rose 4.5 percent to USD 3.9 billion, while business and wholesale revenues were lower. The wireline EBITDA margin was unchanged year-on-year at 23.0 percent, but Verizon said it still expects an improvement in the full-year figure. 

In the consumer market, the company profited from the growing penetration of Fios services, which helped wireline consumer ARPU 10.3 percent higher than a year ago, at USD 125.32 per month. Fios added 162,000 broadband users, offsetting the loss of 93,000 DSL subscribers in the quarter. Fios also gained 114,000 TV customers and 74,000 voice subscribers in the three months. 

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