Contract Subscriber Growth Drives Verizon to Better-than-Expected Q1

By Beecher Tuttle April 19, 2012

Verizon posted first quarter earnings on Thursday that narrowly beat Wall Street expectations, powered mainly by stronger than anticipated contract subscriber growth and a slight uptick in overall net income.

The carrier added 501,000 contract customers in the quarter ending March 31, down significantly from the 1.2 million added in Q4 but slightly above the 497,000 estimate of analysts polled by Bloomberg. The drop-off from the fourth quarter, when Apple introduced the hot-selling iPhone S, was widely expected.

Verizon, like AT&T and Sprint, needs to subsidize Apple handsets by a significant margin to be able to sell the phones at a marketable price. The company then makes the money back through its two-contract plans that include higher service fees.

The benefits associated with iPhone sales were clear in the earnings report; Verizon's average bill per contract customer increased to $55.43, up 3.6 percent from a year ago.

First quarter earnings rose to $1.69 billion, or 59 cents per share, up from $1.44 billion, or 51 cents per share, a year ago. Analysts polled by Bloomberg anticipated earnings of 58 cents per share. Sales also increased to $28.24 billion, up from $26.99 billion in the first quarter of 2011.

“It looks like it was a good quarter over all,” Piper Jaffray analyst Christopher Larsen told Reuters. “Earnings per share was slightly ahead of the Street. Revenue was a little bit better.”

The difficulty that Verizon and other carriers are facing is that new subscriber ads are coming at a premium. The saturation of the market – and the high cost of building out next-generation network infrastructure – may eventually lead to an earnings ceiling that would be difficult to break through.

The earnings report falls on the same day that Verizon will officially expand the reach of its 4G LTE service to an additional 27 markets, meaning the network now covers more than two-thirds of the U.S. population. Verizon says that its 4G LTE network now covers more than six times the geographical area of its closest competitor.

Verizon shares were up 49 cents, or 1.3 percent, in early morning trading.

Edited by Jennifer Russell

TechZone360 Contributor

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