Promotions helped Verizon add subscribers in the latest quarter. But they came at a cost, hurting margins. Fred Katayama reports.
Competition is taking a toll on Verizon. Although the phone and internet company grew revenue and wireless subscribers in the latest quarter, it relied on a lot of promotions to lure them, and that bit into its profit margins. With rivals like Sprint offering to chop mobile service bills in half to defectors from Verizon and AT&T, more of Verizon's customers ditched its service. Analysts say wireless operators are increasingly competing based on price because they offer similar phones. Nomura analyst Adam Ilkowitz said, "This was clearly a mixed quarter for wireless," noting that subscriber additions and device sales beat forecasts but in turn caused cash flow to disappoint Wall Street. The company posted a big quarterly loss mostly because of pension costs, and it predicts it'll face a pension funding requirement of $700 million this year. Verizon is the first among the big telecom companies reporting earnings. On the plus side: a surge in tablet subscribers, who made up 70 percent of the gains in long term contracts. It also added broadband subscribers and boosted its wireline margins.. Verizon's shares, which have been nearly flat the past 12 months, lost ground in early trading.