Verizon benefits as iPhone starts boosting monthly bills; service revenue grows fast

NEW YORK, N.Y. – Holiday sales of the iPhone 4S started to boost revenue at Verizon Communications Inc. in the latest quarter, as subscribers settled in to paying their new monthly bills.

That meant that wireless service revenues grew at their fastest pace in three years at Verizon Wireless. The country’s largest cellphone company started selling the iPhone 4 a bit more than a year ago, but sales got a big boost when the 4S model was released in October.

IPhone sales don’t boost the results of a cellphone company immediately, because the companies subsidize them by hundreds of dollars to be able to sell the phone for $99 or $199. They then count on making the money back in service fees over a two-year contract.

At Verizon Wireless, the iPhone effect was clear in Thursday’s first-quarter report: the average monthly bill for subscribers on contract-based plans was $55.43, up 3.6 per cent from a year ago. A few years ago, monthly fees were stagnant at Verizon.

However, the high price of the iPhone means phone companies are struggling to make it pay — most of the profit from the iPhone is flowing to Apple Inc., not the phone companies. Verizon Wireless recently introduced a $30 “upgrade fee” for existing customers trading up to a new phone.

Verizon Wireless gained 501,000 new subscribers under contract-based plans in the quarter, slightly above analyst expectations. It’s a closely watched figure because contract-based plans are the most lucrative. Verizon is expected to lead the industry this quarter, attracting twice as many new customers as chief rival AT&T Inc., which reports on Tuesday.

Verizon’s overall net income was $1.69 billion, or 59 cents per share, in the first three months of 2012, beating the average forecast of analysts by a penny per share. It was up from $1.44 billion, or 51 cents per share, a year ago.

Revenue rose 4.6 per cent to $28.2 billion from $27 billion a year ago, matching expectations.

Verizon shares rose 58 cents, or 1.5 per cent, to $38.24 in afternoon trading. That is near the upper end of their 52-week range of $32.28 to $40.48 per share.

New York-based Verizon Communications owns 55 per cent of Verizon Wireless, and the corresponding share of the wireless earnings flow to Verizon’s bottom line. The rest goes to joint venture partner Vodafone Group PLC, a British phone company.

On the landline side, revenue continued to decline slowly as customers continue to cancel their phone and DSL lines. Verizon’s cable-like FiOS service continued to attract customers, and Chief Financial Officer Fran Shammo said the company would stop selling DSL Internet service in areas where FiOS is available. DSL is slightly cheaper than FiOS Internet service, but much slower.

With the latest report, Verizon stopped reporting how many non-phone wireless devices connect to its network through wholesalers. Shammo said that’s because Verizon no longer has a good handle on how many devices like “smart” utility meters actually have active connections.