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1/24/2012
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Verizon: 44% Of Customers Use Smartphones

Verizon's fourth quarter earnings show a significant jump in the number of smartphone subscribers, but strong iPhone sales dinged Verizon's margins.

Smartphones: Never Too Thin Or Too Organic
Smartphones: Never Too Thin Or Too Organic
(click image for larger view and for slideshow)
Verizon Communications announced its fourth quarter 2011 results Tuesday, and the overall picture shows the company losing $2.02 billion due to a massive $3.4 billion pension plan charge. The company, which includes both wireline and wireless operations, saw a 7.7% increase in revenue compared to the year-ago quarter.

Verizon Wireless, which is run by Verizon Communications and Vodafone, showed $18.3 billion in earnings for the quarter, which is up 13% compared to the year-ago period. Data revenue (think 3G and 4G mobile broadband) was $6.3 billion, which Verizon said is up 19.2% compared to a year ago.

The company saw 1.5 million retail additions, including 1.2 million post-paid customers (which are the more profitable kind). Those gains were offset by a loss of 490,000 wholesale customers, giving Verizon Wireless a net gain of 1 million subscribers. Verizon claims it has 108.7 million total connections, including 92.2 million retail customers. Verizon's total 2011 customer count of 108.7 million represents a 6.3% increase over 2010's total.

[ Windows Phone's lack of LTE support is a serious problem for Nokia's prospects in the U.S. Can Nokia Crack The Verizon Nut? ]

According to Verizon, 44% of its customers are now using smartphones. That's up from 39% in the third quarter of 2011, and closing in quickly on the 50% mark. Earlier this year, Verizon's CFO Fran Shammo said that the company sold 4 million Apple iPhones during the fourth quarter. The company sold 7.7 million smartphones in total.

Those iPhone sales dinged Verizon's margins, however. Wireless network operators selling the iPhone have to subsidize it heavily to get it down to price points that are acceptable to consumers. The average subsidy on the iPhone is $400, which Verizon recoups throughout the life of the customer's contract. Less expensive smartphones that have lower subsidies allow Verizon to earn more over the life of the contract, but I don't think Verizon is crying about the reduced margins.

The company is plowing forward with the build-out of its LTE 4G network. Its 4G network covers more than 200 million people in 195 markets across the United States. Verizon pointed out that it launched six new LTE devices during the fourth quarter, including smartphones, mobile hotspots, and tablets. The company expects LTE 4G to be in most of the smartphones it sells in 2012.

"Verizon finished 2011 very strong, both in terms of revenue growth and by delivering an 18.2% total return to our shareholders for the full year, and the company has great momentum for 2012," said Lowell McAdam, Verizon chairman, president, and CEO. "Verizon Wireless produced particularly strong growth in the fourth quarter. While that diluted wireless margins in the short term, it is good news for revenue and margin growth over the long term, particularly given our leadership in the rapidly developing 4G LTE ecosystem."

Overall smartphone penetration in the U.S. is at 46%, which is slightly above Verizon's figures. AT&T has had a higher percentage of smartphone users than Verizon in previous quarters, though Verizon Wireless is still the nation's largest wireless network operator in terms of customers.

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