Verizon's Subscriber Growth Fueled by Watches as Phones Lag

(Bloomberg) -- Verizon Communications Inc.’s wireless subscriber rolls surged last quarter, but it was thanks to smartwatches and other wearables -- not the phones and tablets that were once its mainstay.

Monthly subscribers climbed by 260,000 in the first quarter, the carrier said on Tuesday, marking its fourth straight period of growth. That topped the 159,000 average of analysts’ estimates compiled by Bloomberg.

The results renewed optimism that the largest U.S. mobile-phone carrier can cope with a maturing industry. Even as the company lost phone and tablet subscribers, new customers using mobile service for Apple Inc. and Samsung Electronics Co. watches, vehicles and other applications offset the shortfall. The results sent the shares up as much as 3.6 percent to $50.39.

Though Verizon lost phone customers last quarter, the decline wasn’t as bad as what investors were bracing for, according to Kevin Roe, an analyst at Roe Equity Research LLC. The first quarter is seasonally slow, he noted.

“Verizon delivered results slightly above muted expectations, and we think that is good enough for the market,” he said.

The wireless gains help take some of the pressure off Verizon’s attempts to find other sources of revenue from new ventures like Oath -- the media and advertising division that owns AOL and Yahoo’s web business.

Verizon and AT&T Inc., its closest competitor in wireless, have been diversifying into media and entertainment in order to sell customers new services now that almost everyone has a mobile phone.

Verizon’s earnings rose to $1.17 a share, excluding some items, from 95 cents a year earlier. Analysts were forecasting $1.11. Revenue grew to $31.8 billion, beating Wall Street projections of $31.3 billion.

Justice Probe

The wireless industry is heading into a period of transition, with carriers outlining plans for new faster 5G networks and a growing focus on delivering video. Those ambitions may be complicated by a U.S. Justice Department investigation into possible collusion by large carriers, an arrangement that is seen as making it tougher for customers to switch service providers.

Verizon and AT&T said Friday that they are cooperating with the Justice Department as it looks into claims that the carriers have colluded with an industry standards body to slow the adoption of eSIM technology.

Phone manufacturers like Apple have pushed to eliminate SIM cards, which contain a customer’s phone number and identity, in favor of the eSIM software solution. An eSIM would make it easier for customers to switch carriers. Still, a similar Justice Department inquiry into the matter in 2016 was dropped.

Watch Growth

Smartwatches, meanwhile, have helped bring another source of revenue to the industry -- even if the devices aren’t as lucrative as phones. The latest wearable devices, such as the Apple Watch Series 3, have their own network connections. That means they don’t need to link up with smartphones to communicate and -- good news for carriers -- require a separate wireless subscription.

Verizon added about 359,000 subscribers last quarter who are using watches, wearables and other devices. That helped make up for the loss of 24,000 phone customers and 75,000 tablet customers in the period. But watch customers pay $10 a month, compared with the $40 or more that phone customers typically shell out.

That effect was evident in Verizon’s wireless service revenue, which fell 2.4 percent last quarter.

Verizon’s FiOS landline service, meanwhile, added 66,000 internet customers in the first quarter. But it lost 22,000 TV subscribers.

The New York-based company expects service revenue growth to turn positive by the end of the year. Excluding the effect of the federal tax overhaul and other items, earnings will climb in the low single digits, Verizon said in the statement.

“We began 2018 with strong momentum, and we expect it to continue throughout the year,” Chief Executive Officer Lowell McAdam said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Nick Turner, Mark Schoifet

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