IHS Global Insight Perspective | |
Significance | Verizon has posted continuing traction in wireless as well as some encouraging signs in its wireline business. |
Implications | It expects adjusted revenues to increase from 1.9% in 2010 to between 4% and 8% in 2011. |
Outlook | Continuing strength in wireless data will help, as will a continued move into cloud computing, although the operator is likely to see slow fixed broadband growth. |
Verizon has reported a 2.6% year-on-year (y/y) fall in operating revenues in the fourth quarter of 2010 and a 1.2% decline over the full year. Wireless revenue growth of 5.7% y/y in the fourth quarter of 2010 and 5.1% in full-year 2010 was not enough to mitigate a 2.8% (the fourth quarter of 2010) and 2.9% (full-year) fall in wireline revenues. Wireline revenues fell as a result of a steep decline in the Global Wholesale segment, where revenues fell 21.1% and 8.3%, as well as a stronger contraction in the smaller “other” wireline segment. The other two segments, Mass Markets and Global Enterprise, were resilient on the basis of strong FiOS broadband and FiOS TV subscriber growth of 24.2% and 26.3% respectively (Mass Markets), as well solid growth in strategic enterprise services of 7.5% in the fourth quarter of 2010. Strategic enterprise revenues, which include such capabilities as security, IT solutions and strategic networking, now account for 44% of total global enterprise revenues.
On the wireless front, total customers were up 5.6% year-on-year to 94.1 million, while retail customers grew less strongly by 2.4% to 87.5 million. However, there was a strong shift among the customer base towards smartphones and other data-centric devices. In the fourth quarter of 2010, smartphone penetration of the retail post-paid base had reached 26%, up from 15% in the fourth quarter of 2009, while smartphone sales as a proportion of retail post-paid sales had reached 49% in the fourth quarter of 2010, up from 29% in the fourth quarter of 2009. At the end of December 2010 Verizon Wireless had 5.8 million internet devices, reflecting net additions of 323,000 in the fourth quarter of 2010. This lead to a 2%y/y increase in retail post-paid ARPU to US$53.50 in the fourth quarter of 2010, driven by an 18% increase in data ARPU to US$18.80. Wireless service EBITDA margin stood at 47.5% in the fourth quarter of 2010, while wireline EBITDA margin recovered to 23.5%.
Outlook and Implications
- Verizon Sees Revenue Growth of 4-8% in 2011: On an adjusted basis, Verizon posted revenue growth of 1.9% in 2010. It expects to see far greater growth of between 4-8% in 2011, outstripping expected global real GDP growth of 3.29% in 2011 (IHS Global Insight forecasts). Wireless data is likely to drive this revenue growth: Verizon Wireless, which accounts for nearly 60% of company revenues will get the iPhone next month (see United States: 12 January 2011: Verizon Confirms iPhone on Sale from Next Month, Ending AT&T Monopoly). This represents an opportunity for upselling to its own customers as well as attempting to churn current users of AT&T, Sprint and T-Mobile USA. Verizon has also embarked on an aggressive roll-out of Long-Term Evolution (LTE): by the end of next year, it expects to provide coverage of 200 million people. Consumer handsets and related LTE devices are set to appear from the middle of this year. While Verizon Wireless has seen rapid growth in mobile data revenues, its strategy towards LTE device pricing and, more broadly, mobile data pricing, remains under consideration. While Verizon’s CEO sees the capabilities of LTE as transformational, it is likely to have limited impact on revenues in the short term. On the wireline front, Verizon may feel that it is hitting a tipping point, where strategic services may offset the decline legacy data services. Verizon has an established global network of 200 data centres, an IP network in 2,700 cities across 159 countries, as well as some 180,000 customers. Such infrastructure will help push its development of cloud-based services, which are being driven by the need for enterprises to better manage capital expenditure (capex) and operating expenditure (opex), and to provide remote access to IT and telecoms services among employees. Verizon’s relationship with Vodafone will help it to provide the mobility needs of international customers.
- Challenges at Home: While global markets will provide growth opportunities for Verizon, it will face challenges in its home market. The operator is challenging net neutrality rules, ostensibly on a point of principle (see United States: 21 January 2011: Verizon Launches Legal Challenge to FCC over U.S. Net-Neutrality Regulations). However, it is concerned about the potential cost and revenue impact on providing equal access to competitive voice and video providers. Despite an impressive growth in FiOS TV and FiOS internet subscribers, overall, fixed broadband growth was slow in 2010 and marked acceleration is not expected in 2011. Like its core cable customers, Verizon faces the challenge of new online TV providers such as Hulu. More broadly, the outlook for the U.S. economy remains uncertain, with real GDP growth expected to slow from an estimated 2.74% in 2010 to 2.25% in 2011.