Verizon Makes Profits through Wireless Services

Officials at Verizon Communication, Inc. announced strong profits from its wireless services. In other news, analysts forecast wireless revenues to exceed $100 billion by 2017, while Sprint/Nextel was ordered to pay a fine for its use of early termination fees.

Focal Points:

• Officials from Verizon announced that its second quarter profits had risen 12 percent. This growth was attributed to wireless capabilities, with much slower growth in broadband services, as well as a dramatic decrease in its landline revenues. Verizon had a total net GAAP income of $1.88 billion, on revenues of $24.12 billion. Officials said the number of land lines had decreased by 8.5 percent to 38.3 million, which is in addition to the 7.8 percent decrease from the previous year. Broadband services grew by 12 percent, but this result was much lower than the previous year's 26 percent growth. Verizon lost 133,000 DSL customers, but more than made up for this with 187,000 customers gained with FiOS, Verizon's broadband fiber offering.
• Recent published reports showed that mobile data revenues are forecasted to exceed $100 billion by 2017. This represents on annual growth rate of 16 percent, based on 2007 mobile revenues of $24 billion. Some of the factors cited in this growth include the popularity of Apple, Inc.'s iPhone, as well as the increasing overall popularity and use of various new smart phones. Conflicting research estimates show a much slower five percent annual growth rate to $250 million by 2017. The per capita penetration of wireless services in the United States is expected to reach 90 percent in the same time frame, indicating that new data services are likely to be the main driver for wireless revenue growth.
• A judge in California recently ruled that Sprint Nextel has to pay $73 million in refunds to former Sprint customers. The lawsuit occurred in a dispute over Sprint's early termination fees. Officials from Sprint said that this ruling was only tentative, and that the company had two weeks to respond to the court ruling. Consumer advocate groups have hailed this decision, as they believe early termination fees limit competition by restricting customers from moving to another carrier. Early termination fees are in widespread use by carriers as a way to subsidize the cost of phones used to access their services. Verizon settled a similar suit on early termination fees for $21 million.

Experton Group believes wireless and broadband services will continue to be substituted for consumers as a more flexible alternative to fixed phone service. While Experton Group believes data services for wireless will grow, Experton Group does not believe the use of advanced data services will grow at the rate that many analysts predicted, mainly because the form factor for features such as movies and videos is not at the level or price point that will make sense for most consumers.

In addition, most of these services are not likely to be germane for business use and are not likely to be subsidized by business for personal use. IT executives should review their wireless contracts and verify they are only paying for functionality necessary for business use.