Who Needs the iPhone? Verizon Beats AT&T in New Customers

Telecom's First-Quarter Sales Rise 3%; Wireless Revenue Up 29%

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SAN FRANCISCO (AdAge.com) -- Amid all the talk about what the iPhone has done for AT&T, Verizon is also delivering -- without a killer handset.

Verizon offers a wide choice of handsets, including a BlackBerry lineup.
Verizon offers a wide choice of handsets, including a BlackBerry lineup.
Verizon narrowly beat AT&T in new customers in the most recent quarter, netting 1.3 million new subscribers vs. the 1.2 million added by AT&T, and it did so without the latter's advantage of the exclusive, sought-after smartphone from Apple. Verizon now has 86.6 million customers to AT&T's 78 million.

Verizon's first-quarter sales rose about 3% to $26.6 billion, and its wireless-service revenue grew 29% from a year ago. The carrier's net income was $3.2 billion, up from $3 billion a year ago.

The results emboldened Verizon President-Chief Operating Officer Denny Strigl to take a swipe at AT&T's strategy of making the iPhone a centerpiece of its wireless business. Responding to a report during the company's earnings call that Verizon was negotiating with Apple to sell the iPhone after AT&T's exclusivity agreement ends next year, Mr. Strigl said Verizon has "not been dependent on any one device. ... We have a strong handset lineup."

Among U.S. carriers, Verizon has the widest array of handsets to choose from, including 3G handsets -- a strategy that is paying off for the company. "The data consumption across their handsets is high," said telecom analyst Chetan Sharma, adding that 55% of Verizon subscribers have 3G devices vs. a 42% national average.

"It doesn't mean that if you don't have the iPhone, you are doomed," Mr. Sharma said.

James Brehm, an analyst at Frost & Sullivan, agreed that Verizon's investments in the breadth of its handset offerings have paid off. "Its lineup of handsets is broader than any carrier out there, and they're asking handset makers to do interesting things," he said, citing the wide choices in Verizon's BlackBerry lineup, multimedia phones from LG and Samsung, as well as "slider" phones for the texting generation, with keyboards that slide out from underneath the phone. "You're looking at a broad portfolio that can touch about just every need."

Squeezing more out of subscribers
But subscriber growth is getting harder to come by. AT&T and Verizon are partly stealing from each other (and most notably from Sprint, which last quarter shed 1.3 million subscribers), but they are also facing a U.S. wireless-handset base that is approaching 90% penetration. As the number of new customers shrinks, carriers are looking for ways to squeeze more dollars out of their subscribers by selling them wireless data plans as well as data-hungry smartphones.

With consumers looking to upgrade their handsets every 15 months on average, carriers have learned to use attractive handset promotions to get users to commit to two-year contracts and reap the revenue on the back end. During its most recent quarter, Verizon launched a promotion to give away a BlackBerry Storm for every one purchased, banking on the data plan required of users of the first touch-screen BlackBerry to produce revenue later.

Verizon and its competitors have also looked at bringing wireless connectivity to other devices to milk more revenue out of their 3G networks. Some of the 1.3 million new customers Verizon brought onboard signed up for wireless broadband services that plug into laptops and netbooks. That business was growing in the double digits until late last year, when the recession caused companies to pull the plug on wireless data plans for their mobile work forces.

Verizon's wireless churn rate was about 1% in the first quarter of 2008, but this past quarter it rose to 1.14%. Verizon said that was partly due to the economy, and attributed it to service cancellations by small businesses.

Another bright spot in Verizon's earnings was its FiOS network, which delivers high-speed internet and video service to homes in select U.S. markets. The company has been aggressively pitching the service as it continues to build out the network, taking aim at the cable companies. The promotions have paid off, as Verizon added a record 298,000 FiOS customers this past quarter vs. 288,000 in the fourth quarter. Close to 300,000 FiOS video customers joined the service vs. 303,000 in the fourth quarter.

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