Dennis Strigl

Dennis Strigl claims to lose no sleep over financial concerns. “If I can't sleep it's not because of the economy,” says Strigl, president and CEO of Verizon Wireless. “It's probably too much coffee I drank at dinner.”

For Verizon Wireless, Strigl says, business is better than usual — even though the company recently announced lower-than-expected subscriber numbers and blamed them on a softening U.S. economy.

Analyst firms such as Deutsche Banc Alex Brown had expected Verizon to add nearly 1 million new customers. Verizon delivered 518,000, which Strigl attributes to the integration of GTE Wireless and the purging of about 900,000 non-revenue generating accounts. Verizon Wireless ended the quarter with 27.1 million total customers.

Still, Strigl maintains that the country's largest wireless operator hasn't seen the economic slowdown everyone is talking about.

“Virtually every first-quarter customer came on contracts,” he says. “Those are lower-churn, higher-value customers. Our store traffic has increased over April a year ago, and in the first quarter, traffic was above the first quarter a year ago.”

Meanwhile, Verizon's strongest competitors — Sprint PCS, Cingular Wireless and AT&T Wireless — say they have seen some effects from a softening economy even though they posted strong results. Sprint PCS and Cingular say store traffic is down, while AT&T Wireless told analysts it is seeing new and existing customers opting for lower-charge plans rather than high-end plans with more minutes.

The financial world is adjusting its expectations for the year, knowing carriers will be hard-pressed to match the growth of 1999 and 2000. That means they may decrease emphasis on customer adds as a primary metric.

“I'm seeing more of a focus — at least this quarter — on balance of growth with profitability,” Strigl says. Verizon Wireless' operating cash flow grew 20.3% to $1.4 billion, while quarterly operating income rose 40.4% to $490 million.

Wall Street's new thinking could bode well for Verizon Wireless. The company filed for an IPO in August, hoping to raise $5 billion, but has been continually delayed it because of poor market conditions. Now there may be less pressure to add huge numbers of customers prior to the IPO.

As far as cost control, Strigl says his company is focusing on efforts such as billing conversions that bring down the cost per bill, pricing plans and churn. Moving customers onto its lower-cost digital CDMA network is another drive for efficiency.

“It's important to be razor-sharp at all times and monitor what is going to happen in the economy to keep unnecessary costs out of the business,” says Strigl. “Our churn rate needs to be a major focus for the business.”

Churn for contract customers decreased from the fourth quarter to 2.3% in the first quarter. Overall churn including prepaid customers reached 2.8%.

And while Verizon Wireless has cut its capital expenditure budget slightly this year, it still is spending more money than in 2000 — $4.6 billion this year versus $4.3 billion last year.

“It's important for us — not only in strong economic times but also in weak — to focus on our network,” says Strigl. “When a carrier says they are cutting their capex budget substantially, that's trouble. It may get them through in the short term, but cutting capex while minutes of use are growing causes problems down the road. The most important thing to do is continue to invest, because it takes years to fix the problems.”

The CDMA operator will launch its next generation of services during the second half of this year, and Strigl says it's a no-brainer investment.

New 1XRTT technology, implemented via software upgrades, will double Verizon's current network capacity and add packet-data capabilities of up to 144 kb/s. More capacity means the company can compete even heavier on voice-minute pricing.

“We're focusing more on capacity than we are on the data speeds,” says Strigl. “We can drive the cost down because we're putting more volume on the network. Right now, we're averaging 220 minutes per subscriber per month.”