Verizon Wireless smashes net add record

Verizon Wireless added 1.9 million new subscribers in the second quarter, breaking not only its own record for net customer additions, but setting the new benchmark for the industry.

Verizon Wireless now has 47.4 million customers and is quickly closing the gap with No. 1 operator Cingular, which leapfrogged over Verizon last year when it acquired fellow GSM carrier AT&T Wireless. Cingular reported 51.6 million total subscribers last week, meaning Verizon has lessoned Cingular’s lead by 1 million customers since the acquisition last October. The gap still spans 4.2 million subscribers, but Cingular’s net adds have begun to peter out in the last few quarters. After hitting a record high of 1.8 million new customers in the fourth quarter, Cingular’s gains dropped to 1.1 million last quarter. Meanwhile Verizon Wireless has been added at an average of 1.74 million subscribers over the last four quarters.

Verizon Wireless posted a 14.6% gain in revenues from $6.8 billion in last year’s second quarter to $7.8 billion last quarter. It’s operating income also rose 9.9% year-over-year to $1.78 billion though its margins fell from 23.6% last year to 22.7% in the second quarter. Verizon Wireless is 55% owned by Verizon Communications and 45% owned by Vodafone. Due to new accounting rules, however, all of Verizon Wireless’s revenue is counted in Verizon Communications filings, which today reported earnings of $2.1 billion off of $18.6 billion in revenue.

Despite its powerful showing in net additions, Verizon Wireless saw its average revenue per user fall in the second quarter, dropping 2.7% to $49.42 per month compared to a year ago, giving it one of the lowest ARPUs among in the major operators. In comparison, Cingular posted ARPU numbers of $50.43 per month and Nextel, $68.00 per month last quarter. Sprint announces its earnings tomorrow, and it will try to beat the $63 monthly ARPU number it reported this time last year.

Verizon Chief Financial Officer Doreen Toben said that last quarter’s declining ARPU and record subscriber numbers were closely linked by Verizon’s decision to focus on the youth segment this year. While Verizon Wireless succeeded in picking up a good deal of younger subscribers last quarter in face of strong competition from Virgin Mobile and Nextel’s Boost Mobile, the new young subscribers spend a much lower amount per month on wireless, Toben said. Verizon Wireless did, however, manage to bump its churn rate down from 1.4% to 1.2% year-over-year.

Verizon again declined to break out how many data subscribers or CDMA 1X EV-DO users it has on its networks, giving analysts little insight into how its much touted data services are performing. Verizon began its nationwide rollout of 3G networks last year, and launched its consumer 3G service V Cast at the beginning of the year. For its overall consumer data services (combining V Cast and Get It Now 1X subscribers), Verizon reported sending 62 million MMS messages and 36 million individual downloads of content and applications for the second quarter. Verizon now has EV-DO service in 50 metropolitan markets.

Verizon officials added that increases in wireless were in part attributed to the overall company’s increase in capital expenditures this year. Verizon Communications said capex across all wireless and wireline groups would increase 15% over 2004 expenditures of $13.3 billion, up from the 10% Verizon was originally anticipating. Though much of that $15 billion will go to Verizon’s fiber-to-the-home initiatives, a portion of the increase is needed to fund wireless deployments where new capacity is needed, Toben said.