Verizon said Monday that revenue in its second business quarter rose 11 percent year over year to $26.9 billion. Still, earnings per share only amounted to 52 cents in the quarter, versus 66 cents in the same period last year.
Verizon Chief Operating Officer Denny Strigl admitted a noticeable "uptick" in customer exit rates in the last couple of weeks of June due to AT&T's launch of the iPhone 3GS. But he insisted that Verizon isn't losing too many customers due to its lack of an iPhone offering. Strigl also credited Apple's red-hot device for expanding the smartphone market overall.
"When you think about what Apple has done in bringing the iPhone into the marketplace, it truly has accelerated innovation," Strigl said. "And as we talk to all of our manufacturers, everybody has come out with their own iconic device and I think that this has been very good overall for our customers."
Adding the Palm Pre
Strigl's praise lends some credibility to recent industry reports that Verizon is engaged in talks with Apple about obtaining a CDMA version of the iPhone once AT&T's exclusive agreement ends. During last week's Fortune Brainstorm conference, AT&T CEO Randall Stephenson said his company's exclusive iPhone deal with Apple would not last forever.
Having the iPhone would doubtlessly help Verizon attract new subscribers as well as help encourage existing voice customers to upgrade to more lucrative data plans. AT&T CFO Richard Lindner said last week that 35 percent of the carrier's iPhone 3GS buyers "were customers new to AT&T" and more than 50 percent "did not previously have a data plan."
But even without an Apple iPhone, Verizon expects to continue to attract new wireless customers by refreshing its smartphone lineup.
"You can expect to see a steady stream of attractive devices coming," Strigl said. "We plan to refresh the [BlackBerry] Storm later this year, Android is on our road map, we have Motorola devices that are coming, and we plan to offer the Palm Pre early next year."
Not a Make-or-Break Deal
Palm is currently engaged in a cat-and-mouse game with Apple over access to the iTunes Store. Though Apple recently introduced new software to block Palm Pre handsets from accessing its online music store, Palm responded by releasing its own software upgrade last Thursday, which, among other things, restores iTunes access for the Palm Pre.
If Palm continues to thwart Apple's attempts to block iTunes access, the arrival of the Palm Pre on Verizon would give the carrier at least some of the device's unique capabilities. However, Gartner Research Director Carolina Milanesi doesn't think iTunes access is a huge marketing plus.
"Although an iTunes connection is nice to have, I really do not think this is a make-or-break functionality in Europe or elsewhere," Milanesi said. "It would, of course, be another similarity with the iPhone and it would make up for the lack of its own ecosystem."
Despite AT&T's success with the iPhone 3GS, Verizon Chief Financial Officer John Killian said the company isn't losing business to its U.S. wireless rival. "Smartphone sales remain strong, representing about 40 percent of our new-device sales this quarter," he said.
Killian also noted that Verizon just reported an industry-leading retail postpaid turnover rate, or "churn," of 1.01 percent for the second quarter. "Competitive activity really hasn't been the issue as it relates to us," Killian observed. "It's been much more the economy and employment."
Nevertheless, Verizon's total number of wireless subscribers rose 27.7 percent to 87.7 million in the second quarter. Moreover, the wireless carrier's data revenue growth "was 33.2 percent this quarter with non-messaging services up 44 percent and messaging up 20 percent," Killian said.