Verizon's Q2 highlights need for new growth markets

Summary:Verizon is forging ahead with machine-to-machine connections, cloud services and vertical offerings to boost growth in the future.

Verizon reported an in-line second quarter where it harvested wireless profits, saw so-so FiOS customer additions and enterprise revenue remained stagnant. The upshot: Verizon is forging ahead with machine-to-machine connections, cloud services and vertical offerings to boost growth in the future.

The second quarter was a bit ho-hum for Verizon. As CNET's Roger Cheng noted, wireless contract additions are slowing for wireless carriers. Verizon reported second quarter earnings of $1.8 billion, or 64 cents a share, on revenue of $28.55 billion, up 3.7 percent from a year ago. The results were in line with Wall Street estimates and Verizon said it is on track for double-digit earnings growth.

Among the key figures:

  • Verizon added 1.2 million wireless customers including 880,000 retail postpaid.
  • Verizon sold 2.7 million iPhones and 2.9 million Droid devices and most of them were 4G LTE phones.
  • Postpaid churn was 0.84 percent.
  • Wireline consumer revenue was up 2.5 percent in the second quarter.
  • Verizon added 134,000 FiOS Internet and 120,000 FiOS video customers.

Fran Shammo, Verizon CFO, said on a conference call that the telecom giant was squeezing more efficiency out of the business and driving more revenue from customer accounts.

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In other words, Verizon is harvesting profits from its strong 4G LTE coverage and investments in the FiOS network. The big question: What's next?

Verizon's bets go like this:

  • Cloud. Verizon's acquisitions of Terremark and Cloudswitch have bolstered the company's cloud and hosting capabilities. The problem is that Verizon is still retooling its enterprise business. Shammo said:

Enterprise and wholesale revenue continues to be impacted by secular and global economic challenges, particularly in Europe as well as by related foreign exchange movements. In addition, as we indicated last quarter, we are also making deliberate and specific moves to rationalize and simplify our enterprise solutions product portfolio.

  • Machine to machine connections. Verizon has plans to acquire Hughes Telematics. The goal here is to integrate telematics into Verizon's enterprise services and focus on automotive, transportation, health care and manufacturing. Shammo added:

I think the important thing here is we are really building our business around platforms, and if you look at what we've done, we are rated number one in the world on security. We have built our data center platform around our Terremark acquisition. And now we are going to build our machine to machine and applications platform around the Hughes Telematics and I think that brings a different paradigm to us going forward. I am very optimistic on the enterprise business. 

  • Home automation. Bolstered by the Hughes purchase, Verizon is looking to automate homes and their operation.

These services are designed to leverage Verizon's wireless strength. It's unclear whether these new efforts can juice Verizon's growth rates. For now, Verizon seems content to harvest profits and drive more revenue from shared family data plans.

Ed note: A previous version of this article put net income at $4.28 billion. That figure includes Verizon's Vodafone interest. Net income in the second quarter attributed to Verizon was $1.8 billion. Story has been corrected above. 

Topics: Mobility, 4G, Cloud, Networking, Telcos

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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