After losing subscribers earlier this year, Verizon Communications Inc. turned things around in the second quarter. But it came at a price.
In response to aggressive marketing from rival T-Mobile US Inc., Verizon last year started selling wireless plans with a "safety mode" feature that slowed data speeds instead of charging overage fees when customers exceeded their data caps. Then, in February, the U.S.'s largest wireless carrier by subscribers started selling unlimited data plans for the first time in five years.
Customers responded, and the carrier added 614,000 net postpaid subscribers in the second quarter, a major improvement over the 307,000 it lost during the first three months in the year. Already, 59% of Verizon's customers have moved to an unlimited plan or one that doesn't charge overage fees.
Investors cheered Verizon's results, sending shares up 7% in midday trading.
Alongside the customer gains, however, is a dramatic drop in revenue from overage fees. Overage-fee revenue fell 34% in the second quarter compared with a year earlier.
Verizon doesn't disclose exactly how much money it makes from overage fees, but Matt Ellis, its finance chief, said on a call with analysts that it represents "a low single-digit percentage" of total service revenue, which was $15.6 billion in the quarter.
"Do I like losing the overage revenue? No," he added in an interview. "It's real money. It's not chump change every quarter. So the reduction of it matters."
But the carrier makes more money from having more customers, he said. "Growing the volumes back, and some part of the overage going away, is a good trade."
T-Mobile has made killing overages a major part of its marketing message since 2014.
Verizon's total revenue was $30.5 billion, little changed from the year-ago period but exceeding Wall Street's expectations. Excluding revenue from acquisitions, such as Yahoo, and other asset sales, revenue fell 2%.
Revenue in the wireless business, Verizon's largest, fell 1.9% to $21.3 billion, while revenue at the wireline segment that includes its FiOS service grew 1.2% to $7.8 billion.
In all for the June quarter, Verizon reported net income of $4.36 billion, or $1.07 a share, compared with $702 million, or 17 cents a share, a year ago. Excluding certain items, Verizon earned 96 cents a share.
During the quarter, Verizon launched its newly formed digital-media division, called Oath, after closing its purchase of Yahoo assets. Verizon said Thursday that the unit, which includes brands like HuffPost, AOL and TechCrunch, has about $7 billion in annual revenue, which was consistent with year-earlier results. The company said it wants to save $1 billion in cumulative operating expenses through 2020.
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(END) Dow Jones Newswires
July 27, 2017 13:40 ET (17:40 GMT)