Verizon: 2.3 million iPhone 4 activations; strong Q2; McAdam CEO

Verizon delivered strong second quarter results, named Lowell McAdam CEO, added 1.3 million postpaid customers and activated 2.3 million iPhone 4 units.

The company reported second quarter earnings of $3.6 billion, or 57 cents a share, on revenue of $27.53 billion. Wall Street was expecting earnings of 55 cents a share on revenue of $27.4 billion.

Verizon's results come a day after AT&T's second quarter results. AT&T delivered a strong quarter as it diversified its smartphone base with Android, iPhone 4 and iPhone 3GS.

According to Verizon it activated 2.3 million iPhone 4 devices in the quarter in a strong showing. Since landing the iPhone 4, Verizon has activated 4.5 million of the devices. AT&T activated 3.6 million iPhones in the quarter, a sum that includes iPhones 4 and 3GS.

This slide illustrates Verizon's quarter in smartphones.

The results indicate that the iPhone is giving Verizon a substantial boost. Verizon said its retail postpaid churn was 0.89 percent, the lowest in three years.

Verizon Chairman Ivan Seidenberg, who is handing the CEO role over to McAdam in a planned succession Aug. 1, said that Verizon Wireless expected to gain retail postpaid share throughout 2011. Indeed, Verizon reported its best quarter since the 2008 economic downturn and McAdam has a nice set-up to succeed. Seidenberg will remain chairman.

Speaking on Verizon's earnings conference call, McAdam said he understood his obligation as CEO was to serve customers and shareholders. He also noted that Verizon can be "a global solutions and networking company" that spans wireless and wired connections and enterprise services.

Regarding global enterprises, McAdam said the plan was to work with partner Vodafone, which owns half of Verizon Wireless in a joint venture, to target on the top 50 largest joint customers and offer a global wired and wireless network bundle. "I am pleased with the evolution of our partnership with Vodafone," said McAdam. "We are clearly moving from a purely financial partnership to an operating partnership. We are now facing our largest multinational customers as one team. We have aligned our product and our technology roadmaps, and we are beginning to purchase infrastructure together. All of these actions will began to enhance our revenue and our cost profiles."

On the earnings conference call, there was a lot of time spent on the revenue per user as customers transition from 3G to 4G. The latter can deliver lower revenue. CFO Fran Shammo said:

While the unit growth is very strong and a key area of focus for us in expanding this category, the average ARPU on these devices is less than $54 and is declining on a year-over-year basis. We are seeing some migration of 3G customers who were paying about $60 per month to a new 4G device at a $50 per month price point. These pricing plans are intended to expand the category while delivering high profitability , and we already see evidence of this in our second-quarter margin result. The strategy within this category of devices is to build share so that we can benefit from the significant growth in usage we anticipate in the future.

By the numbers:

• Verizon said its first half capital expenditures were $8.9 billion in the first half, up from $7.6 billion a year ago. The spending reflects the roll-out of Verizon's 4G LTE network.
• Wireless revenue was $17.3 billion in the second quarter, up 10.2 percent from a year ago. Data revenue accounted for 39.5 percent of the wireless revenue total. Average monthly revenue per user was $54.12 for retail postpaid customers.
• Overall, Verizon added 2.2 million total connections including 1.3 million retail postpaid additions. Note that Verizon counts iPad connections as postpaid. AT&T classifies tablets as a connected device.

• Total churn for Verizon was 1.22 percent in the second quarter.
• Wireline revenue was $10.2 billion, down 0.3 percent from a year ago.
• Verizon added 189,000 new FiOS Internet connections and 184,000 FiOS TV customers. Verizon now has 4.5 million FiOS Internet and 3.8 million FiOS TV connections.
• Enterprise revenue was $4 billion, up 3.6 percent from a year ago. Sales of cloud, security and networking services were up 17.8 percent from a year ago.