Verizon Reports Q2 Prepaid Losses Resulting From Shuttering of ACP
Verizon lost 410,000 prepaid wireless customers tied to the end of the affordable connectivity program in Q2, the company said Monday as it became the first major wireless carrier to report earnings since the impact of ACP's demise could be measured. Overall prepaid customer losses were 624,000. But Verizon also gained a net 148,000 postpaid customers, which beat expectations. Revenue of $32.8 billion just missed consensus estimates. Though most numbers were positive, Verizon was down 6.08% to $39.09 for the day.
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Verizon experienced "some impact on the prepaid brand as was expected, and also a little bit on Fios” as a result of ACP's demise, CEO Hans Vestberg said on a call with analysts. During Verizon's Q1 call, Vestberg emphasized the carrier's ACP alternatives, including $20 monthly Fios for low-income families and prepaid wireless (see 2404220042).
“We had a really good quarter,” the fourth in a row with improvements in EBITDA, cash flow and wireless revenue, Vestberg said on CNBC Monday. Revenue was down because fewer customers are upgrading their phones, he said. The average customer now keeps a phone for more than three years, “which is very long -- I remember when we changed the phone every year.”
As the wireless market becomes more saturated, segmentation and providing “the right offering for the right customers” has become more important, Vestberg said. “I don’t think that anybody can live without wireless and broadband.”
Vestberg highlighted Verizon’s progress in deploying the C-band spectrum it bought in 2021 for $45.4 billion, plus $8 billion in incentive costs (see 2102250046).
Initial C-band markets outperform other markets “with better gross add growth, higher uptake of premium services and lower churn,” Vestberg said. Nearly half of the carrier’s network traffic is running on its ultra-wideband 5G network, up from 36% a year ago, he said.
Vestberg also discussed Verizon’s partnership with AST SpaceMobile to deploy satellite-to-device connectivity. “This will bring our network to unserved communities, as we target 100% coverage from coast to coast.” Vestberg declined comment on reports that Verizon is seeking the sale of up to 6,000 towers (see 2407160026).
Among other results, wireless revenue of $19.8 billion was up 3.5% compared with a year ago, Verizon said. Net income of $4.7 billion was down from $4.8 last year's quarter. Verizon reported 3.8 million fixed wireless subscribers, up 69% in a year, with 218,000 adds in Q2. The company had 24,000 Fios internet net adds. Wireless retail postpaid phone churn was 0.79% in the quarter, and business postpaid phone churn was 1.1%.
Free cash flow of $16.6 billion in the first half of the year is down from $18 billion in first-half 2023, which Verizon attributed to higher cash taxes and higher interest expenses.
MoffettNathanson’s Craig Moffett said Verizon continues struggling with 5G penetration rates because C-band “isn’t very good spectrum.” In the months leading up to the end of the C-Band auction, it was clear that the 3.7 GHz spectrum “wouldn’t propagate very well” and “wouldn’t penetrate walls and windows,” he told investors. Despite that, carriers, led by Verizon, spent nearly $100 billion in the auction, he said: “Unfortunately, the high price paid for C-Band doesn’t change its propagation characteristics. Physics are physics.”
Verizon’s problem, Moffett said, is that customers count on having the nation’s best network. “That’s a tough sell when your 5G customers are only connected to 5G 7.7% of the time. T-Mobile, with better pricing as well, is pulling away.” Moffett’s numbers are based on a recent OpenSignal Network Experience report that found that Verizon customers “are almost never actually connected to the 5G network,” he said.