Verizon adds 358K postpaid phone users in Q2 as move to unlimited pays off

Verizon’s decision to join its rivals in offering unlimited data plans continued to pay dividends in the second quarter. Whether that strategy is sustainable, though, still isn’t clear.

The nation’s largest wireless carrier reported 614,000 total postpaid net additions during the quarter, soundly beating Wells Fargo Securities’ prediction of 112,000, and its 358,000 net postpaid phone adds outperformed Wells Fargo’s estimate of 75,000.

The news was a marked improvement over a first quarter that saw Verizon lose 289,000 postpaid net phone customers after being slow to respond to the rush to offer unlimited plans. The carrier finally introduced an unlimited data plan in mid-February, joining its rivals and reversing course after years of decrying the wisdom of offering all-you-can-eat on a high-speed wireless network. The company had been on pace to lose nearly 400,000 customers during the first quarter before it introduced its unlimited offering.

Investors cheered the second-quarter results, sending shares of Verizon up roughly 6% in early trading this morning. And Verizon CFO Matt Ellis said the company’s network is handling the increased traffic the new unlimited plan is driving.

“Our network experience continues to be recognized by multiple third-party studies as the industry leader since the launch of unlimited,” Ellis said on the company’s earnings call. “Two of these studies have confirmed our network leadership in overall performance, including speed and voice quality over LTE.”

Here’s a closer look at some of Verizon’s key quarterly metrics:

Subscribers: Verizon’s net phone additions of 358,000 were up significantly from the 86,000 the company posted during the same period a year ago, and it saw 590,000 smartphone additions compared to 336,000 smartphone adds last year. Verizon’s retail postpaid connections base grew 1.2% year over year to 109.1 million, and prepaid connections grew 1.4% to 5.4 million. Overall postpaid churn was .94%, consistent year over year despite increased churn in tablets, beating analysts’ estimates, and ARPA—average revenue per account—came in at $134.89, falling just shy of the $135.80 projected by Wells Fargo and marking a 7% decline from last year.

Financials: Total wireless revenue was $21.3 billion, beating analysts’ forecasts in the range of $20.8 billion but down 2% from last year, and wireless service revenue of $15.6 billion was in line with Wall Street estimates but down 6.7% year over year. The company said the decline in service revenue should improve in the second half of 2017, however, as more customers move to device payment plans.

Media and the IoT: Verizon closed on its acquisition of Yahoo in the second quarter and said it now claims 1 billion monthly unique users across its online properties, which encompass more than 50 brands. The company said it expects to see more than $1 billion in “cumulative operating expense synergies” through 2020, racking up roughly $7 billion in revenue per year. And it said its telematics and IoT businesses generated $220 million in organic revenue during the quarter, up roughly 20% year over year.

Summary: Verizon’s second-quarter results clearly calmed the nerves of anxious investors, just as AT&T’s earnings report did earlier this week. And the company’s subscriber gains indicate that customers remain willing to pay a premium for access to a high-quality wireless network, even as the network gap between service providers has narrowed significantly.

Whether Verizon can maintain its network edge in an era of unlimited data is unclear, however. Recent data from Ookla indicates that the networks of both Verizon and AT&T have suffered as traffic has ramped up in recent months, as T-Mobile recently pointed out. So Verizon must continue to move quickly to meet the ever-increasing demands of consumers as mobile data traffic soars.

“Subscriber trends recovered sharply this quarter; however, this is partly due to an aggressive push behind unlimited that we don’t think is sustainable for Verizon,” New Street Research analysts said in a note to investors. “They have the least capacity per sub of all the carriers, and their network performance is already deteriorating both in absolute terms and relative to peers (see Ookla network speed data). Verizon is also paying for improved sub trends with ARPU and service revenue pressure. The recovery in subs is also partly due to record low churn across the industry in general, which we suspect will reverse later in the year with the new iPhone launch.”