Verizon Loses Land-Line Customers, Profit

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By Arshad Mohammed
Washington Post Staff Writer
Wednesday, August 2, 2006

Verizon Communications Inc. said yesterday that its profit fell 24 percent and it lost 1 million land-line phone customers during the second quarter.

Verizon chief executive Ivan G. Seidenberg also told securities analysts that the company was unlikely to buy Vodafone Group PLC's 45 percent stake in Verizon Wireless for the next several years, ending months of speculation that a deal might be imminent.

While Verizon's profit decline largely reflected special items, the report revealed that traditional land-line customers are abandoning the nation's second-largest phone company at an accelerating rate for cable, Internet and wireless service.

Cable companies such as Comcast Corp., Time Warner Cable Inc. and Cablevision Systems Corp. have rolled out telephone service faster than Verizon has developed its Fios TV service, giving the cable firms an edge in selling customers a "triple play" of phone, Internet and TV.

Verizon said its number of landlines fell 1 million in the second quarter, to 47 million. In contrast, Verizon Wireless customers increased 1.8 million, to 54.8 million, while Verizon's high-speed Internet connections rose 440,000, to 6.1 million, in the same period.

Verizon Wireless was created in April 2000 when the British firm Vodafone and Bell Atlantic Corp., one of Verizon's predecessor companies, merged their mobile phone businesses. Seidenberg told analysts that Vodafone recently made clear to him that it thinks it will be better served by keeping its stake in Verizon Wireless over the next several years rather than selling it.

In a further sign of how competitive the alternative telephone market has become, Vonage Holdings Corp., a pioneering provider of Internet phone service, reported mounting losses yesterday even as its customer base continued to grow. Vonage is spending more to acquire those customers, who can also choose from cable-based phone service or free Internet voice offerings, such as Skype.

Verizon, of New York, said its second-quarter profit fell to $1.6 billion, or 55 cents per share, from $2.1 billion, or 75 cents per share in the same period a year ago. But second-quarter 2005 profit included a $336 million gain, chiefly from the sale of Verizon's land-line and directory operations in Hawaii.

Verizon said charges for overhauling its pension plans and for integrating MCI Inc., which it bought in January, cut this year's second-quarter earnings by 9 cents a share.

Before special items, profit was 64 cents a share, two cents above Wall Street analysts' prediction.

Analysts said the news of the land-line losses appeared to weigh on Verizon's stock -- which fell 55 cents, or 1.6 percent, to close at $33.27 -- despite the fact that Verizon's wireless and Internet growth more than made up for the difference.

"Investor sentiment may focus on the decline in the wireline business in the short term, but we expect this decline to abate gradually beginning later this year," Sanford C. Bernstein & Co. analyst Jeffrey Halpern wrote in a research report. "We expect wireless and broadband to continue delivering industry-leading results."


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