Verizon rides iPhone 5 to earnings boost

Smartphones drive revenue and profit higher as landlines disappear.

By Jason Notte Oct 18, 2012 10:38AM

arrow upIf you still don't think Apple's (AAPL) iPhone 5 can make you popular, just check out the nearly 2 million new friends in Verizon's entourage.

Apple's newest toy, released in September, didn't just impact Verizon's (VZ) third-quarter earnings. It was the most talked-about kid at the party. Tucked away in Verizon's earnings report among Samsung's Galaxy S III, HTC's Droid Incredible, Motorola's (MSI) Droid Razr M and other devices that didn't rack up five million sales for Verizon in their debut weekend, the iPhone 5 was a big reason third-quarter revenue jumped 3.9% to $29 billion and revenue per share increased 14% from 49 cents per share to 56 cents per share.

The iPhone made up the overwhelming majority of the 6.8 million phones Verizon sold in the third quarter. Smartphones in particular helped Verizon add 1.5 million new wireless subscribers and boosted its total subscriber base to 90.4 million. Smartphone users surged to 53% of Verizon's wireless subscribers from 50% in the second quarter.

That would be fairly gaudy under normal circumstances, but the June debut of Verizon's Share Everything plan, which gives users a pot of data to spread around to as many as 10 devices, gives smartphones a much bigger stake in user revenue. With Verizon reporting average revenue per account instead of average revenue per user as a result of the new plan, smartphones have helped boost account revenue by 6.5% over third-quarter 2011 to $145.42 a month.

Coupled with a $30 smartphone upgrade fee that Verizon implemented in April, revenue from its new data-based approach is no small deal. It's helped increase profit margins from 49% in the second quarter to 50% in the past three months, which helps with AT&T (T) announcing earnings next week and recently bought-out Sprint (S) retooling. AT&T is already outpacing Verizon's upgrade fee by charging $36 to swap smartphones, while Sprint tacks on a $18 fee plus $10 every month just for owning a smartphone.

But what if you're a Verizon customer who has no use at all for these newfangled wire-free phones or just wants to make sure the hard line stays operational if a natural disaster strikes? Well, news is a little worse for the landline folks. Landlines still produced $9.9 billion in revenue in the third quarter, but that's down 2.3% from a year ago. Meanwhile, Verizon dropped more than 800,000, or 6.3%, of its residential phone subscribers in the quarter while losing 6.8% of its hardline business overall.

The hardline customers who remain aren't getting an endangered-species discount, either. With hardline expenses eating up more than $9.8 billion of that $9.9 billion revenue, Verizon is trying to squeeze every dime it can through those wires. The average amount paid per hardline account is now $103.86 a month. That's 10.3% more than hardline customers paid at the same time last year and and even bigger increase than the 8.5% year-to-year jump in the second quarter.

So what's a squeezed hardwire customer supposed to do? Well, Verizon proposes its FIOS Digital Voice service to customers who happen to be in its 17.4 million FIOS homes and businesses. FiOS internet connections were up 14.4% last quarter, while its FiOS Video subscriber numbers increased 15.4%. Verizon didn't even bother to post a percentage increase for Digital Voice users, though, considering it "not significant."

Can Verizon interest you in an iPhone 5 instead?

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