January 24, 2012

Verizon, KPN Earnings Show Where Growth, Weakness Exists in Telecom


The most recent earnings reports from Verizon and KPN indicate where growth and weakness exist in the global telecom industry. To the extent there is strength, it is in the mobile services space, though signs of trouble are growing for some service providers. Fixed line services are flat at best.

Verizon earnings and revenue growth during the fourth quarter of 2011 were strong. Verizon had revenue of $28.4 billion, an increase of 7.7 percent from the same quarter of 2010.

After adjustments for a strike, a huge snowstorm, a pension charge and higher costs for Apple iPhone subsidies, Verizon earned 52 cents a share, just below analyst forecasts of 53 cents, so share prices dipped after the earnings were released.

Verizon actually ended the quarter with a $212 million loss, down from a $4.6B profit in the period last year, on revenues of $28.4 billion.

The revenue increase was a company record. The operational results are always are more interesting for some of us who track changes in the wireless and wireline communications business. Wireless generated $18 billion worth of revenue, and wired services about $10 billion.

Operating revenue grew in mobile, but declined in fixed line. Basically, all the new FiOS revenue is simply compensating for losses in other legacy services, including voice services and digital subscriber lines.

In the fourth quarter 2011, Verizon Wireless delivered the highest number of retail net additions in three years and strong growth in revenues, driven by increased smartphone penetration andincreased retail postpaid ARPU (average monthly service revenue per user).

Total wireless revenues grew 13 percent year over year while data revenues grew 19 percent year over year.

Verizon Wireless also added one million total net connections in the quarter.

Things weren’t so rosy at KPN. KPN experienced a 63 percent drop in fourth-quarter 2011 net income, driven in large part by the sale of its consulting business, but also reflecting product substitution by its customers.

Some observers believe Royal KPN NV (KPN), the largest Dutch telecom company, is the proverbial “canary in the coal mine,” providing early and advanced warning of trends that could surface in other markets.

In particular, observers are worried about the now-clear trend of KPN customers substituting non-revenue or low revenue product substitutes for KPN’s voice and text messaging services.

“2012 will be a year of transition in the Netherlands, as we aim to bottom out our broadband market share and to stabilize our market share in consumer wireless,” Chief Executive Officer Eelco Blok said.

“The forecasts for 2012 are worse than the most bearish expectations in the market,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers.

KPN Chief Executive Eelco Blok says falling domestic revenues are responsible for the shortfall. Dutch smart phone subscribers are using Facebook, Twitter and instant messaging rather than traditional voice calls, which obviously means less demand for messaging and calling services.

Of course, the level of competition in the Netherlands telecom market also is a factor.  KPN predicts tough year

 

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Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves



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