By Sinead Carew
NEW YORK Oct 17 Verizon Communications Inc
on Thursday posted stronger- than-expected third-quarter
earnings and revenue driven by wireless growth, sending its
shares up 4 percent.
While wireless customer growth was slightly below Wall
Street estimates, its Verizon Wireless venture with Vodafone
Group Plc posted good profit and revenue growth as
customers spent more on data services. Verizon has agreed to buy
out Vodafone's 45 percent share of the venture.
The subscriber shortfall caused some concern that the
company, the first U.S. telephone operator to report this
quarter, was losing market share to rivals such as T-Mobile US
New Street analyst Jonathan Chaplin said that while
Verizon's financials were "outstanding," "there were clear signs
that a resurgent TMUS is impacting even Verizon."
Chief Financial Officer Fran Shammo conceded some
lower-spending customers moved to rival services in the quarter
even as he told analysts on the company's quarterly conference
call that "we continue to gain market share."
Instead, he blamed the subscriber shortfall on shortage of
Apple Inc's iPhone 5S. About one-half of the Verizon
Wireless smartphone activations were iPhones, representing
roughly 3.9 million iPhone activations.
"The shortage on the 5S was a significant issue for the
quarter," Shammo told Reuters in an interview.
The executive said that 8.4 percent service revenue growth
at Verizon Wireless was sustainable in the short term but
expected the growth rate to decline in the future.
Verizon Wireless added 927,000 net retail subscribers in the
quarter, compared with Wall Street expectations of about 1
million customers, according to eight analysts, with estimates
ranging from 900,000 to 1.2 million.
While much of Verizon's growth was from customers connecting
devices like tablet computers, Verizon said phone customers,
still made up the most of its growth at 481,000.
Verizon said it expects wireless customer growth to improve
sequentially in the fourth quarter but did not give specific
Verizon reported a third-quarter profit of $2.2 billion, or
78 cents per share, compared with $1.59 billion, or 56 cents per
share, a year ago.
Excluding unusual items, Verizon earned 77 cents per share
in the quarter, compared with Wall Street expectations of 74
cents, according to Thomson Reuters I/B/E/S.
Its wireless profit margin was 51.1 percent, based on
earnings before interest, taxes, depreciation and
amortization(EBITDA) as a percentage of service revenue, and
above its target range of 49 percent to 50 percent for the full
Hudson Square analyst Rethemeier said the profit margin
would likely come down in the fourth quarter due to steep
holiday season costs, since the company kept its wireless margin
target for the year despite the strong third-quarter number.
Revenue rose 4.4 to $30.28 billion from $29.01 billion. Wall
Street expected $30.16 billion, according to Thomson Reuters
Strong wireless service revenue growth for the quarter was
offset by a decline of 3 percent in its global enterprise
business and a slower 4.3 percent rise in its consumer business,
which includes its FiOS television service.
Verizon's enterprise business was affected by government
budget cutbacks and cost cuts in the private sector, according
to Shammo, who expects the business to remain flat in 2014.
"Generally speaking, enterprise customers continue to be
cautious regarding new investment decisions," Shammo said.
Verizon, which competes with cable companies in television
and broadband services, said it added 173,000 net FiOS Internet
connections and 135,000 net FiOS video customers in the quarter.
Shammo said Verizon terminated a technology joint venture
with cable rivals Comcast Corp, Time Warner Cable
and privately held Brighthouse Networks for competitive
The venture, which had worried some consumer advocates, was
set up to develop converged wireless and wireline products for
consumers when Verizon agreed to buy wireless spectrum for its
The cable operators still resell Verizon Wireless services
in markets where they do not compete but Shammo said that the
technology venture was killed because of competition concerns.
"What was realized was that the cable companies didn't want
to jointly develop something that FiOS was going to get at the
end of the day and of course we weren't doing to jointly develop
something that FiOS wouldn't get," Shammo said. "There was no
meetings of the minds."
Verizon shares rose 3.9 percent to $49.14 in afternoon
trade on the New York Stock Exchange.