BlackBerry drives Verizon gains, and could get iPhone too

Caroline Gabriel/Rethink Wireless
04 May 2009

Verizon reported better than expected first quarter revenues and earnings, largely driven by its mobile joint venture with Vodafone, and is also rumored to be in talks with Apple about launching a CDMA iPhone. These reports come despite bids by AT&T to extend its US exclusive, and recent comments by Verizon CEO Ivan Seidenberg that it would wait until LTE to carry the Apple handset.

The Verizon group reported net income of $3.21bn or 58 cents per share, up 5.3% on last year\'s $3.05bn, on revenues up 11.6% year-on-year to $26.59bn, beating Wall Street estimates of $26.32bn. Excluding special items, mainly charges related to the Alltel acquisition last year, Verizon earned 63 cents per share, above expectations of 59 cents.

Like AT&T, whose first quarter also appeared to defy the consumer spending downturn, the biggest driver was mobility, though Verizon also performed well in its FiOS fiber operations. Verizon Wireless grew its customer base by 28.8% year-on-year to 86.6m, including the 13.2m net additions from the acquisition of Alltel. It added 1.3m net retail customers (excluding Alltel subscribers), slightly outperforming AT&T, which added 1.2m. Wireless revenues were $15.1bn, up 29.6% (or 9% on a pro forma basis following the acquisition).

Meanwhile, Verizon Wireless was reported by USA Today to be in the throes of negotiations with Apple over a CDMA iPhone, talks that sources say have been ongoing for several months. \'Breaking the exclusivity with AT&T is a huge thing,\' Nielsen\'s head of telecom research Roger Entner told the newspaper - although Apple might conceivably argue that a CDMA version was a different product not covered by the exclusive deal. \'That would send shivers into AT&T\'s stock and senior leadership,\' Entner continued.

He has a point - given that over half AT&T\'s new net additions in Q1 were iPhone users, the cellco is perhaps fatally over-dependent on a single handset. It will have to offer something very enticing to keep Apple exclusive, with the phonemaker facing increased competition in the multi-touch webphone market. Creating a CDMA version - not a huge engineering feat anyway - will be even more attractive to Apple if it fails to sign up China Mobile or China Unicom, as it could then turn to the CDMA carrier, China Telecom, in the high growth country. Verizon COO Denny Strigl said: \'We have no announcements to make today relative to Apple. Historically we have not been dependent upon one device.\'

Even without the iPhone, Verizon Wireless\' data revenue was rising at a similar rate to AT&T\'s - 36.8% on a pro forma basis, or 56.2%, to $3.6bn (AT&T\'s rose 38.6% to $3.2bn). Though it does not have a flagship heavy duty data driver like the iPhone, it has been widening its range of high end smarpthones and AT&T is playing catch-up in terms of the data capacity of its 3G network. Verizon\'s wireless data ARPU was up 20.8% to $14.16, driven mainly by email, mobile broadband and messaging, even though overall ARPU was down from $50.98 a year ago to $50.74.

Non-messaging revenue was up 47%. The BlackBerry, especially the Storm - codeveloped by RIM and Vodafone - is the crown jewel, generating ARPU of $100. At the end of Q1, Verizon had 19.3m \'integrated devices\' - smartphones and PDAs - which accounted for 41% of direct device sales. On the negative side for Verizon Wireless, churn was up almost 1.5% to 1.14%, mainly because of drops in broadband access PC cards and small business accounts.

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