October 18, 2012 12:32 pm

Mobile revenues boost for Verizon

Verizon Communications, the second-largest telecoms group in the US by revenue, more than doubled net new mobile subscribers to 1.8m in the third quarter on the back of rapid smartphone sales growth.

The group, which could face tougher competition in the US market in future given merger deals at smaller rivals, said that earnings per share rose 14 per cent excluding some items to 64 cents overall.

There was a particularly strong third-quarter performance of its mobile phone operator Verizon Wireless, which is 45 per cent owned by Vodafone. The unit beat analyst expectations with 1.5m retail post-paid net additions, a wireless service revenue growth of 7.5 per cent and a record high 50 per cent earnings before interest, tax, depreciation and amortisation margin on service revenue.

Verizon will increase contributions to its pension scheme to $3.4bn this year, much higher than its estimate at the start of the year of $1.3bn, in order to reduce pension risk and align assets with liabilities, it said.

The decision has prompted speculation that this would press Verizon Wireless to pay out a long-expected dividend to its two shareholders – Vodafone and Verizon Communications.

Verizon told analysts that feel it was premature to talk about the dividend from the wireless unit but that it would talk to Vodafone before the end of the year.

Citi said in a note that “should Verizon [Communications] decide to fund the entire $3.4bn pension top-up from cash upstreamed from Verizon Wireless, the VZW dividend would have to be $6.2bn higher than otherwise, and of which Vodafone’s share would be $2.8bn, or 3.5p per share”.

Verizon Wireless sold 6.8m smartphones in the quarter, boosting retail post-paid phone connections to 53 per cent from 39 per cent a year earlier, with greater use of mobile data on its next-generation 4G network pushing the price for the average monthly contract higher by 6.5 per cent.

Overall third-quarter revenue climbed 3.9 per cent to $29bn. There was a 4.6 per cent increase in consumer revenues at its fixed-line business, and year-on-year growth in consumer average revenue per user of 10.3 per cent to $103.86.

The company said that it was on track to meet 2012 financial objectives. Lowell McAdam, Verizon chairman and chief executive, said: “In the third quarter, Verizon continued to deliver double-digit earnings growth and strong cash generation. Wireless achieved record profitability in a quarter in which we reported the highest number of retail post-paid gross and net adds in four years.”

Operating income was $5.5bn in the third quarter, compared with $4.6bn in the third-quarter of 2011, and ebitda rose to $9.7bn, from $8.8bn last year. Cash flow from operating activities was $24.8bn in the first nine months of 2012, compared with $21.5bn in the first nine months of 2011, with capital expenditures of $11.3bn in the period.

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