Verizon Communications reported its first-quarter earnings on April 21, beating analysts expectations for earnings on lower-than-expected sales. The wireless carrier reported a profit of $1.02 per share and $32 billion in revenue. Verizon added 565,000 postpaid connections, but postpaid phone subscribers fell 138,000.
After the report, CFO Fran Shammo and Michael Stefanski, senior vice president of investor relations, spoke with analysts about the quarter's results. Here are five key quotes from Shammo during that call.
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The upgrade opportunity
Verizon continues to shift its customer base to 4G devices, which typically carry higher service fees than basic and 3G phone customers. During the quarter, Verizon added 621,000 4G smartphone customers. As of the end of the quarter, 70% of Verizon's postpaid connections were on 4G devices.
While Verizon has an opportunity to convert its basic phone and 3G smartphone customers, it also must prevent those customers from leaving for low-priced competitors like Sprintand T-Mobile. Last quarter, Shammo said Verizon wouldn't chase customers and lower pricing to compete, but would rely on its superior network coverage. To his credit, basic phone subscriber losses -- the category most vulnerable to the competition -- declined nearly 50%.
The tablet opportunity
Tablets are a key part of Verizon's future growth as phone connections remain relatively flat to down. The company added 820,000 4G tablets last quarter, and it's more than doubled the number of tablets on its network over the last 12 months.
Tablets have been a key reason Verizon's wireless segment revenue increased 6.9% year over year. Even though tablets carry lower service fees than most of Verizon's basic phone subscribers that it's losing, they help Verizon keep its most valuable customers.
Verizon loves Edge
The take-rate on Verizon's Edge plans, which provides installment billing for equipment, climbed to 39% last quarter. This quarter, Shammo expects that rate to climb higher, as the company has seen a take-rate of 50% in the second quarter so far.
Edge helps Verizon cut costs since it doesn't have to subsidize smartphones. However, it accounts for a large percentage of equipment cost when a person signs an Edge contract. The company is monetizing those contracts by securitizing them and selling them to banks. This helps cash flow keep up with the company's reported revenue, but it doesn't completely follow. So, while Verizon is saving on costs, it's also seeing lower cash flow over the life of a subscriber.
Over-the-top streaming video
Verizon is working on a streaming video service offered exclusively to its wireless customers. The product will offer another way for Verizon to differentiate its service from the competition aside from its network. It could also lead to more tablet sales, as tablets are more conducive to video consumption.
However, customers may be wary of paying for the higher data allotments that the service would inevitably consume. Verizon could offer unlimited streaming of the service on its network, pay-per-view, or sponsored data by including advertisements. Sponsored data was allowed by the FCC in the recent net neutrality ruling, allowing businesses to pay for a customer's data consumed by a specific app.
With Custom TV, Verizon started offering FiOS customers the option to buy a skinny bundle of channels with add-on channel packs organized by niche. Several media companies have come out claiming that the way Custom TV organizes their networks violates their contracts with the pay-TV provider.
Verizon is coming out looking like the good guy, fighting for consumers, while media companies strike them down. So even if it's found that Custom TV violates its current contracts, Verizon is scoring points with customers. Ultimately, Custom TV could exact change among media companies and support more consumer choice.
The article 5 Things Verizon Communications Wants Investors to Know originally appeared on Fool.com.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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