Data usage, not the Storm, drives VZW's Q4

Verizon Communications finished out the fourth quarter strong, due in large part to its wireless division. Coming off a solid third quarter in which it downplayed the value of AT&T’s exclusive iPhone partnership with Apple, the wireless carrier showed it might not even need its exclusive deal with Research in Motion’s BlackBerry Storm to come out on top.

On a conference call today discussing the earnings, Verizon chairman and Chief Executive Officer Ivan Seidenberg stayed quiet on how many Storms Verizon Wireless shipped, but Wall Street Journal reports put it around only 500,000 units for the first month. A good start, but nowhere near the progress AT&T and Apple made, selling 2.4 million 3G iPhones in the first quarter after its launch. The Storm has suffered from software problems and bugs – issues AT&T and Apple were not immune to, but leaving some to wonder if the Storm was rushed to market in an attempt to find Verizon’s iPhone killer before the holiday season.

Despite the Storm’s issues out of the gate, VZW posted 41.4% growth in data revenue, suggesting strong usage of its other smartphone devices. The carrier’s fourth-quarter earnings benefited from another 1.4 million subscribers added, down slightly from the 1.5 million added in the previous quarter. Overall, fourth-quarter earnings grew by 15% over a year earlier. Net income totaled $1.24 billion, with a 12.3% increase in total wireless revenue from a year earlier. Total, for the year, VZW added 5.8 million organic net new retail customers, what it claims is the most of any US wireless carrier. For 2009, Bernstein Research analyst Craig Moffett is predicting wireless subscriber additions to total only 3 million, down from its original estimates of 4.2 million.

Before Verizon’s $28 billion acquisition of Alltel, closed on Jan. 9, the carrier’s total customer base came in at 72.1 million customers, putting it in second place behind AT&T Wireless, which reports its quarterly earnings tomorrow. With Alltel adding nearly 8 million additional customers, VZW now counts 80 million subs, propelling it to first place in the US wireless industry.

“We also enhanced our growth opportunities through the acquisition of Alltel,” said Doreen Tobin, Verizon’s chief financial officer. “It expands our network to cover nearly the entire US population, improves revenue mix and makes us the largest US carrier in terms of total customers, which will be in excess of 80 million following the required divestitures. It also presents us with significant synergy opportunities. Having just closed the transaction, we are still figuring out the balance sheet, but this is clearly a value-creating transaction.”

The Alltel acquisition will also allow Alltel to penetrate deep into rural communities where smaller pre-paid providers, including Leap Wireless and MetroPCS dominate. Nearly 67 million of VZW’s customers are retail post-paid today, but a growing presence by prepaid providers including Sprint’s Boost Mobile, Leap Wireless and MetroPCS are proving to be competitive as some consumers reevaluate their calling plans and tighten their budgets. Chief Operating Officer Denny Strigl shrugged off the competition when asked, saying that VZW would do nothing differently in its markets where Leap and MetroPCS are entering. He said that this question always comes up two to three times a year, but VZW’s primary focus is on the retail post-paid market, so he doesn’t see the prepaid providers affecting it.