Verizon Wireless activated 2.2 million CDMA iPhones during the handset's first eight weeks of availability on the wireless carrier's network. But only 22 percent of the iPhone activations through the end of March represented new Verizon customers, the company's executives told investors during a conference call Thursday.
Industry observers were surprised that Verizon's highly anticipated iPhone launch last February only attracted about 500,000 new customers to the carrier's wireless network. On the other hand, Verizon's total iPhone sales exceeded Piper Jaffray's estimate of 1.5 million for the March quarter.
Overall, Verizon had a very strong quarter of device sales, with 906,000 retail postpaid customers added. "Roughly 60 percent of all phones sold in the quarter were smartphones -- up from 36 percent just one year ago," noted Verizon CFO Francis Shammo. "Sixty-five percent of all smartphone sales were new to the category, meaning they were existing customers with feature phones or new Verizon customers."
Record iPhone Sales
AT&T enjoyed record iPhone sales in the first quarter of 3.6 million units -- despite losing its iPhone exclusivity in the U.S. wireless market. "That's almost one million more than last year, with 23 percent of these subscribers new to AT&T," said AT&T Mobility and Consumer Markets CEO Ralph de la Vega. In other words, AT&T gained more than 828,000 new iPhone customers in the quarter versus 500,000 net iPhone customer additions at Verizon.
Furthermore, few of the new subscribers buying an iPhone from Verizon appear to have switched from AT&T. "iPhone churn by itself was the same year over year," de la Vega said. "And iPhone sales increased, which means we continued to grow our iPhone base."
Some analysts have attributed AT&T's stable churn rate to the carrier's aggressive drive to sign up existing customers to long-term contracts in advance of Verizon's iPhone launch, but AT&T executives disagreed. "The reality is, even if customers were under contract, they have the ability to break that contract, pay a termination charge, and, most likely, take that device that they had and sell it and recover most, if not all, of that contract termination," AT&T CFO Rick Lindner told investors Wednesday.
Lindner attributed AT&T's stable churn rate to capabilities available on AT&T's GSM iPhones that Verizon's CDMA model cannot currently match, such as allowing voice and data sessions simultaneously as well as using the device around the world. However, the biggest factor behind AT&T's 33 percent year-over-year iPhone sales growth is undoubtedly the wireless carrier's $49 iPhone 3GS, which "is selling very well," de la Vega said.
Still, Verizon continues to lead AT&T in several important wireless network categories. For example, the postpaid churn rate at the nation's leading wireless carrier continued to outperform the U.S. market overall at just 1.01 percent in the first quarter. AT&T's churn rate during the same period was 1.36 percent.
What's more, Verizon added 906,000 retail postpaid customers, versus just 62,000 at AT&T. Even better, Verizon activated more than 260,000 units of the carrier's first 4G LTE smartphone -- the HTC Thunderbolt, which is priced at $249.99 -- in the final two weeks of the first quarter. By contrast, AT&T has drawn numerous buyer complaints concerning the carrier's 4G smartphone offerings -- the Atrix 4G and HTC Inspire 4G -- because the network has not yet switched on the high-speed HSUPA capabilities built into the new devices.