Verizon Communications Inc. is seeing a big boost from the iPhone, adding more new subscribers on contracts in the second quarter than it has in two and half years.
Yet AT&T Inc., which has been the exclusive seller of Apple Inc.'s iconic phone in the U.S. until February, still activates three iPhones for every two Verizon does.
When posting a profit for the second quarter on Friday, Verizon also said Chief Operating Officer Lowell McAdam will take over from long-time CEO Ivan Seidenberg, 64, on Aug. 1. The company has signaled the succession for the past year. McAdam, 57, is the former head of Verizon Wireless.
Seidenberg will remain chairman of the company. He became the CEO of Bell Atlantic in 1998. It changed its named to Verizon in 2000 after a major acquisition.
Verizon added 1.26 million wireless subscribers under contract in the April to June period, a result that flies in the face of the slowdown in new subscribers across the industry in the last two years. Since nearly everyone already has a cellphone, gaining new subscribers is chiefly a matter of luring them over from other carriers. A year ago, Verizon added just 665,000 subscribers under contract.
Verizon activated 2.3 million iPhones, well below the 3.6 million AT&T reported for the same period. Verizon sells only the iPhone 4, starting at $200, while AT&T also sells the older iPhone 3GS for $49.
McAdam said iPhone sales haven't quite been as good as the company expected, chiefly because it believed a new iPhone model would arrive this summer, as it usually does. Apple hasn't said why there's no new phone yet.
"We expect it probably sometime in the fall. I think you'll see a significant jump there," McAdam told analysts on a conference call.
Analyst Michael McCormack at Nomura Securities said he was expecting Verizon's wireless revenue to grow even faster, and the fact that the average monthly fees per user hardly budged even as Verizon added high-paying iPhone subscribers was a major disappointment. Wall Street "will have to rethink the longer-term wireless revenue growth opportunity," he said.
Verizon shares fell $1.01, or 2.7 percent, to $36.56 in late morning trading.
Chief Financial Officer Fran Shammo defended the results in an interview, saying average monthly fees are being held back because many of the new devices being added to the network aren't phones but tablets or Internet modems, with lower monthly fees. But these are very profitable devices and show the way to industry growth beyond phones, he said.
"We're expanding the market," Shammo said.
Even with relatively slow iPhone sales, Verizon is handily outdoing AT&T, which recruited only 331,000 new contract subscribers in the quarter. The iPhone is AT&T's chief draw, while Verizon has other advantages on its side, like a broader "3G" data network and new, ultra-fast "4G" network in many cities. In the quarter, Verizon sold 1.2 million devices that use the 4G network, including laptop modems and the HTC Thunderbolt smartphone.
Verizon ended the quarter with 106.3 million devices connected to its wireless network, making it the largest carrier in the country. No. 2 and chief rival AT&T is trying to leapfrog Verizon in size by buying No. 4 T-Mobile USA for $39 billion.
Verizon said its net income was $1.61 billion, or 57 cents per share, in the three months ended June 30. A year ago, it posted a loss of $1.19 billion, or 42 cents per share.
Analysts polled by FactSet were expecting earnings for 55 cents per share, on average.
Revenue rose 2.8 percent to $27.5 billion from $26.77 billion and in line with analysts' expectations.
Excluding the sale of phone lines in 14 states at the end of last year's second quarter, Verizon's revenue grew 6.3 percent on the back of its thriving wireless operations.
However, only 55 percent of Verizon Wireless' profits flow to Verizon Communication's bottom line, because British carrier Vodafone Group PLC owns 45 percent of the cellular carrier.
"In terms of earnings growth and the acceleration of revenue growth, this has been one of Verizon's best quarters since the 2008 economic downturn," CEO Seidenberg said.