Global Insight Perspective | |
Significance | Verizon has continued to grow from wireless, broadband, and triple play. |
Implications | Profits have fallen because of taxes and one–off expenses but should regain ground over 2007 despite rising capital expenditure. |
Outlook | Verizon will be disappointed by the instability over CANTV nationalisation, making it impossible to continue with consolidating its portfolio in the near future. |
Consolidated Results
Verizon has reported mixed results for the fourth quarter and year ending 2006, with revenues continuing to rise to US$22.6 billion, up 26.1% from the fourth quarter of 2005, or US$88.1 billion for the full year, up 26.8% from 2005. Net income for the fourth quarter has fallen to US$1.0 billion, hit by a number of factors including non-recurring tax charges arising from the sale of assets in the Dominican Republic and Puerto Rico which were finalised in the last quarter (see World: 4 April 2006: Verizon Sells Latin American, Caribbean Assets to América Móvil and Telmex for US$3.7 bil.). Additionally, operating expenses grew to US$19.2 billion for the quarter, up by 29.6% year-on-year (y/y), or to US$74.8 billion, up 31.3% y/y for the full year, although this includes the revenues and expenses from the integration with MCI (Verizon Business) (see United States: 1 November 2005: FCC Approves SBC-AT&T and Verizon-MCI Mergers). Pro-forma results comparing the combined businesses performance for 2005-06 indicate revenues up 3.3% while cash expenses rose by 3.0% for the year. Full-year profits were US$6.2 billion or US$2.12 per share, down 16% y/y, although before "special items" are considered they rose by US$0.2 billion to US$7.4 billion.
Wireless
Verizon Wireless operations, 55% owned by Verizon and 45% by Vodafone, continued as the core engine of growth with 2.3 million net additions over the quarter to total 59.1 million subscribers, up 15% y/y. This was just edged out by Cingular Wireless's impressive 2.4 million net additions over the same period to total 61.0 million subscribers (see United States: 25 January 2007: Cingular's Outstanding Last Quarter Before AT&T Mobility Calls). However, Verizon was more successful at attracting high-value post-paid subscribers—31% of Cingular's new subscribers were prepay, while 2.1 million of the 2.2 million retail subscriber additions for Verizon were post-pay, to leave around 9% of the total net additions as pre-pay customers.
Verizon continued to lead in other related metrics, generating an ARPU of US$50.78 which continued to rise in the fourth quarter while Cingular's dropped slightly to US$49.92. This contributed to the leading revenue generation of US$10.1 billion for the last quarter of 2006, up 16.3% y/y, to give year-end revenues of US$38.0 billion, up 17.8% y/y, benefiting from the high number of post-paid subscribers, likely the result of an edge in business subscriptions.
Churn also remained low at an industry-leading 1.14% for the fourth quarter or 1.17% overall. Data ARPU was also leading at US$7.91 for the fourth quarter, up 63% y/y, while Cingular recorded US$7.19. This was boosted by 17.7 billion SMS messages, 353 million MMS messages, and 78 million downloads.
Verizon Telecom
As Verizon deployed its fibre-to-the-home (FTTH) network and upped DSL speeds (see United States: 5 December 2006: Verizon DSL and Fibre Deployments Keep on Rolling), it recorded strong growth with a total of 7.0 million broadband subscriptions, up 35.7% y/y by 1.8 million for the year. FiOS deployments passed six million homes, including 2.4 million enabled for TV services. There were 207,000 customers who joined FiOS TV and 687,000 who took the ultra-high-speed FTTH service, breaking targets for 175,000 FiOS TV customers from 1.8 million available households but not meeting the penetration target for 725,000 internet customers from 5 million premises (see United States: 28 September 2006: Verizon Lays Out FiOS Deployment Status, Expectations).
Wireline attrition continued with the loss of 366,000 primary lines over the fourth quarter, but this was balanced by 508,000 new broadband and video customers over the quarter. At the end of 2006, Verizon served 45.1 million access lines, down by 7.6% y/y.
Business Services
Verizon business grew revenues to US$5.3 billion, up 2.3% on the third quarter and 2.7% y/y (pro-forma). Synergy targets from the merger with MCI are now estimated at US$900 million, up from US$825 million.
Implications and Outlook
- Wireless: Although Verizon is a strong performer, particularly in its wireless division, Verizon is unlikely to gain control of Verizon Wireless in the near future and be able to maximise the benefit from full business integration synergies that AT&T is taking advantage of (see United States: 3 May 2006: Verizon Reiterates Desire for Full Ownership of Wireless Unit and United States: 22 January 2007: AT&T Offers Unlimited On-Net, Mobile-Landline Calling). Verizon has launched a number of advances to its content portals and will continue to try to realise the benefits of convergence, but this will continue as an inhibitor to full integration.
- International Issues: Verizon has also suffered from bad news on the international front with the estimated US$750-million asset that is the 28% stake in Venezuelan operator CANTV that was almost sold to America Móvil currently unrealisable and unlikely to see full value (see Venezuela: 22 January 2007: President of Venezuela Says State Will Not Pay Market Rate for CANTV and 4 January 2007:Verizon Extends CANTV Purchase Deadline with America Móvil). This will stymie further moves to reduce debt load.
- Capital Expenditure: Capital expenditure for 2007 is estimated at between US$17.5 billion and US$17.9 billion, with wireline expenditure at US$10.7 billion to US$10.9 billion while wireless takes US$6.6 billion to US$6.8 billion. Fibre deployments and upgrades to HSDPA will dominate these expenses.