Capital Spending Cut for Verizon Surprises

As the first U.S. wireless carrier to report earnings, we don’t have much context around Verizon’s relative performance, but the numbers look good. The firm added 295,000 net postpaid phone customers, its best third-quarter performance in three years. Customer defections ticked up modestly year over year, but gross additions (primarily customers leaving other carriers and choosing Verizon) picked up more. This dynamic makes sense given that Comcast and Charter are now marketing wireless services. Given Verizon provides the network supporting these offerings, customers switching to the cable giants isn’t a total loss. Also, average revenue per postpaid account increased sequentially for the second consecutive quarter, as more customers migrate to unlimited plans and choose more expensive service tiers. Wireless services revenue growth continues to improve, hitting 2.6% during the quarter.

Wireless profitability also continues to move in the right direction, benefiting from revenue growth and Verizon’s efforts to reduce costs. Importantly, in our view, cost-cutting is showing up primarily in sales and overhead expenses rather than network costs. We expect the cost to operate the wireless network will increase over time as Verizon maintains its leadership position.

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