Verizon announced its financial performance for the third quarter of 2017 – indicating that T-Mobile has started squeezing its revenue in addition to grabbing wireless customers.
Earlier, T-Mobile US started taking away wireless customers from Verizon and AT&T by offering the most cost effective plans and the best mobile networks. The significant drop of Verizon Q3 revenue from wireless and wireline businesses indicates about the long term pressure on Verizon Chairman and CEO Lowell McAdam.
T-Mobile CEO earlier predicted that 1-2 wireless heads will be removed during the year due to hyper competition. But wireless carriers have not removed any heads till today. AT&T, T-Mobile and Sprint will be announcing their financial results shortly.
Verizon posted consolidated revenues of $31.7 billion (–2.3 percent), net income of $3.7 billion, EBITDA of $11.5 billion, operating income margin of 22.7 percent, EBITDA margin of 36.2 percent compared with 33.9 percent.
Thanks to Verizon’s acquisitions over the past year, driven by the Yahoo acquisition in June, Verizon’s consolidated revenue grew 2.5 percent.
“Verizon Wireless delivered another quarter of profitable growth combined with strong customer loyalty,” said Chairman and CEO Lowell McAdam.
Verizon is focused on driving profitability through efficiencies across its business and in September announced it has targeted $10 billion in cumulative cash savings over the next four years.
“Verizon’s cost efficiencies are also improving, as operating margins rose 160 basis points year-to-year to 22.7 percent. Verizon targets $10 billion in cumulative cash savings by 2021 by tightening spending via zero-based budgeting,” said Steve Vachon, analyst at TBR.
Verizon said its capital expenditure (Capex) was $11.3 billion during the first nine months of 2017. Consolidated capital spending for 2017 will be at the lower end of the range of $16.8 billion to $17.5 billion.
Verizon has generated $2 billion revenue from Oath, part of Verizon’s media business. Investment in media business was part of the Verizon strategy to manage pressure on the wireless business from main rivals.
Verizon aims to grow its digital media division into an annual revenue stream of over $10 billion by 2020. Verizon is also beginning to cross-integrate its mobility and advertising technology businesses via its new Verizon Up rewards program.
Verizon generated telematics revenues of more than $220 million. IoT (Internet of Things) revenues of Verizon increased approximately 13 percent. Both developments are not encouraging for Verizon because the wireless operator wants to play a lead role in telematics and IoT business for its global customers.
TBR analysis indicates that revenue from the Fleetmatics and Telogis acquisitions contributed to Verizon’s IoT revenue rising 55 percent. The carrier is attracting machine-to-machine customers via its Cat M1 network offring more cost-efficient means to implement IoT solutions.
Verizon said its consumer connected device segment generated 238,000 postpaid net additions, driven by its expanding wearables portfolio.
Verizon generated revenue of $21.6 billion (–2.4 percent) from wireless business with an operating income of $7.6 billion and operating income margin of 35.2 percent. Wireless EBITDA was nearly $10 billion with EBITDA margin of 46.2 percent, compared with 44.9 percent in Q3 2016.
Service revenues fell 5.1 percent versus a 6.7 percent decrease in the second quarter. Sequentially, service revenues increased for the first time in 12 quarters.
TBR said continuing to offer tiered data plans is enabling Verizon to offer lower entry-level postpaid prices than T-Mobile, which offers postpaid unlimited data plans exclusively.
Despite 742,000 wireless retail net additions, Verizon’s service revenue fell 5.1 percent due to subscribers transitioning to discounted nonsubsidized service plans.
Service revenue increased sequentially, however, for the first quarter since 3Q14 as 49 percent of postpaid phone customers are now on device payment plans.
Verizon expects its service revenue trend to continue to improve in fourth-quarter 2017, exiting the year with a year-over-year decline of less than 4 percent.
Verizon has approximately 78 percent of its postpaid phone base on unsubsidized service pricing plans, compared with 60 percent in Q3 2016.
The percentage of phone activations on device payment plans was about 77 percent in Q3 in line with Q2. Verizon expects a seasonal increase in this rate in Q4 2017. Approximately 49 percent of postpaid phone customers had a device payment plan.
Verizon added 603,000 retail postpaid connections.
Verizon’s phone additions of 274,000 included 486,000 smartphones, compared with 242,000 smartphone additions in Q3. The 603,000 postpaid net adds included tablet net adds of 91,000 and net adds of other connected devices, led by wearables, of 238,000.
The company had 109.7 million retail postpaid connections and 5.6 million retail prepaid connections.
Verizon added 30,000 postpaid accounts in Q3 2017, compared with a loss of 107,000 postpaid accounts in Q3 2016.
Total retail postpaid churn was 0.97 percent in third-quarter 2017, driven mainly by retail postpaid phone churn of 0.75 percent – the 10th consecutive quarter of retail postpaid phone churn of less than 0.90 percent.
Verizon generated revenue of $7.7 billion (–2.7 percent) from wireline business with an operating income of $65 million.
Fios revenues grew 4.8 percent, and consumer Fios revenues increased 4.6 percent during the third quarter.
Verizon added 66,000 Fios Internet connections and lost 18,000 Fios Video connections, reflecting the ongoing shift from traditional linear video to over-the-top offerings. Verizon had 5.8 million Fios Internet connections and 4.6 million Fios Video connections.
Network and Technology highlights
The introduction of unlimited wireless pricing plans has increased LTE network usage. Just over 50 percent of Verizon’s available low- and mid-band spectrum portfolio is being used for 4G LTE.
Verizon’s network has maintained a high level of performance, despite widespread power outages, during natural disasters in Texas, Florida and Northern California. Though Verizon is not a wireless operator in Puerto Rico, Verizon offered assistance to local carriers and government officials working to recover from hurricane damage there.
The Verizon Intelligent Edge Network, the company’s future network architecture designed to meet the demands of new types of applications, has many components that lead to a multi-use, software-driven network at scale.
Verizon’s pre-commercial 5G fixed wireless broadband trials are continuing, and the company is on track to share trial results later in the fourth quarter.