With iPhone in the wings, Verizon mobile data growth continues unabated

Verizon Wireless (NYSE:VZ, NYSE:VOD) is one iPhone launch away from what will probably be its most successful quarter in its history in terms of gross and net subscriber additions. That said, Verizon Wireless performed not too shabbily in the fourth quarter without it.

Sans iPhone, Verizon added nearly 1 million new subscribers, saw its data revenue skyrocket and sold one smartphone for every two handsets that left its stores. It managed to score 65,000 long-term evolution (LTE) subscribers in the single month of the quarter its new mobile broadband network was operational.

In Q4, 49% of all Verizon phone sales were smartphones, and 75% of net additions were smartphone customers. That makes the smartphone 26% of its retail postpaid base of 82.8 million customers, or 21.5 million smartphones. Those numbers are sure to increase this quarter after the iPhone launches in early February. Verizon wouldn’t offer any predictions on how many of the new CDMA iPhone 4 it would sell, but chief financial officer Fran Shammo indicated on Verizon’s earnings call that analyst estimates of 11 million units are probably not off base. In fact, Verizon based its own revenue and earnings growth projections on that 11 million unit figure.

Verizon will be doing everything it can to ensure those gross add numbers are as high as possible, including leaving its smartphone data plans unrestricted. McAdam confirmed that Verizon Wireless would be offering unlimited data plans with the iPhone 4, which could prove a strong lure for AT&T (NYSE:T) iPhone subscribers or customers on the fence. AT&T eliminated its unlimited smartphone plans last year, offering two tiers of data service, a $15 for 200 MB plan and a $25 for 2 GB plan. Verizon has offered similar tiered plans for its tablets and its new LTE services, but it’s holding off extending them to smartphones. Given the competitive advantage it gives VZW over arch-competitor AT&T for iPhone mindshare, Verizon will likely hold on to unlimited plans as longs as it feasibly—and profitably—can.

Though it probably won’t provide as big a boost as the iPhone, Verizon may also benefit from the launch of its first embedded LTE data devices this quarter. Verizon has promised that one LTE device aside from a dongle will be available by March, though it hasn’t specified what that device will be. If it’s a WiFi router, LTE sales won’t dramatically increase over what it’s seeing today, but if it’s a handset or tablet, Verizon might wind up selling the two hottest wireless devices in the market simultaneously. By the end of second quarter it says it will have at least 10 LTE devices on the market.

In addition to smartphones, Verizon had 5.8 million data devices in its postpaid portfolio, including laptop USB cards, tablets, embedded netbooks and WiFi routers. That number includes the 65,000 new LTE subscribers, 41% of which were new customers to Verizon. Verizon’s postpaid average revenue per subscriber (ARPU) attributable to data jumped 19.3% year over year to $19.97 and rose 70 cents from the third quarter. Overall data revenues increased 25.5% year-over-year to $5.3 billion in the fourth quarter. Still Verizon faces the same problem as its competitors. Its overall postpaid monthly ARPU stayed flat at around $53.50. So while data ARPUs are growing dramatically, traditional voice revenues are falling at nearly the same pace.

Of 955,000 net adds, 88% or 872,000 were retail postpaid adds, 7% were wholesale subscribers, and 5% were prepaid subscribers. Overall wireless service revenues stayed flat at $14.2 billion quarter over quarter but increased 7.7% year over year. Postpaid churn was 1.01%. Verizon’s margins improved slightly, but it might face enormous pressure on this front in the coming months. The iPhone will be heavily subsidized and Verizon will sell millions of them, which could drive margins down until iPhone sales stabilize and the impact of the iPhones data revenues come into focus. AT&T experienced the same problem quarter after quarter as it subsidized millions of iPhones over several generations.

CFO Shammo said Verizon has been preparing itself extensively for the upcoming iPhone launch and wouldn’t face the same problems as AT&T. Selling its ad hoc iPad service gave VZW its first taste of selling and supporting Apple (NASDAQ:APPL) products. VZW has been steadily upgrading network CDMA EV-DO capacity, adding new cell sites, data carriers and installing fiber to its cell sites. Shammo said the network will be able to handle whatever data onslaught the iPhone brings.