Data Demand Shifting Verizon Earnings Into High Gear

Verizon Wireless today reported strong earnings and subscriber growth for the final quarter of 2010, keeping it ahead of its biggest rival, AT&T (s t). Verizon (z vz) says it added 872,000 retail postpaid customers, bringing its total customer base to 94.1 million people. Another 8.1 million Verizon accounts include highly profitable machine-to-machine connections. Churn was low while revenue and margins were up for the quarter, but looking back, this period may be seen as the time where Verizon really hit the gas pedal.

To understand that, one needs to look at Verizon’s wireless data situation, because this past quarter was the first where the operator offered a new 4G network. Verizon’s LTE service only became available on Dec. 5, and with just two data devices that could use it, the new network had minimal impact on the quarter. That changes with the calendar, as this quarter will be the first full three-month period that Verizon will see revenue opportunity from its LTE investment. But the impact will take time; Verizon announced 10 new LTE devices at this month’s Consumer Electronics Show (CES), but they’re rolling out slowly in the first half of 2011.

Even as consumers wait for such 4G  tablets, phones and data sticks to appear, Verizon has plenty of growth from its 3G network to reap. The carrier says only 26 percent of its customers have smartphones, meaning it has more opportunity to sell devices to data-hungry consumers as opposed to AT&T, which has a higher concentration of smartphone customers, estimated at more than 40 percent. Combine the pent-up demand for the upcoming Verizon iPhone (s aapl) along with hot new 4G handsets coming soon, and you have a potential growth recipe given that 74 percent of non-smartphone Verizon customers are in the audience.

With just a quarter of the customer base on smartphones, however, Verizon is already enjoying such growth; the ARPU, or average revenue per user, for the quarter grew to $53.90, or 2.5 percent over the fourth-quarter 2009. Digging a little deeper though, Verizon’s quarterly numbers show that data ARPU increased to $19.97, up 19.3 percent from the same quarter last year. And of the 872,000 new customers, Verizon says 75 percent purchased smartphones and the lucrative plans that go with them.

Verizon hasn’t yet announced handset pricing plans for its new 4G network, but based on the growing revenues per data plan, it may be able to keep consumer costs the same as its current 3G plans. That could help attract new customers just as the operator increases its LTE footprint by an additional 140 markets this year. Between smartphone adoption, a fast, new, mobile broadband network and powerful devices that can leverage it, we may consider this last quarter for Verizon to be the first one where it began to accelerate away from competitors even faster.

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