Strong results from Verizon Communications Inc.'s wireless and long-distance divisions helped the nation's largest telephone company compensate for continuing declines in its core local business.
Verizon yesterday reported a profit of $3.91 billion ($1.41 per share) for the first three months of the year, compared with a loss of $500 million (18 cents) in the same period last year. This year's results included a one-time gain of $2.1 billion (77 cents) resulting from a change in the way Verizon accounted for depreciation of its outdoor equipment.
First-quarter revenue was $16.3 billion, down less than 1 percent from the same period last year. But Verizon has now sold 1.27 million telephone lines that had generated $241 million in revenue a year ago. Excluding revenue from those lines, revenue increased 0.6 percent in the first quarter of this year, according to the company.
Verizon cut costs by 3 percent, which included a 10.2 percent reduction in its workforce, to 158,000 employees.
Verizon Wireless, which Verizon jointly owns with Britain's Vodafone Group PLC, reported a 14.8 percent increase in revenue, to $5.1 billion and cash flow from operations of $1.56 billion, up from $1.19 billion. It also reported a 12.6 percent increase in subscribers, to 33.3 million. The company added 833,000 customers in the previous three months.
"Overall it was a fairly impressive performance," said Blake Bath, a telecommunications analyst with Lehman Bros. "I think the market would have rewarded the stock more if the overall industry environment was better."
Verizon stock yesterday closed at $33.99 a share, up 82 cents, or 2.5 percent.
Verizon recently completed the process of getting state and federal approval to offer long-distance service in all 50 states and the District. It began offering long-distance in the District, Maryland and West Virginia last week.
The dominant local telephone company in the Northeast is now the third-largest long-distance company in the country. During the previous three months, Verizon added 710,000 long-distance subscribers, bringing its customer base to 13.2 million.
The long-distance industry has been particularly hard hit by the three-year telecommunications downturn. Analysts have raised concerns that the entry of local telephone companies such as Verizon will only increase the downward pressure on prices. But Verizon chief executive Ivan G. Seidenberg said yesterday that the company has been adding customers largely by bundling products such as local and long-distance phone service. "I don't see lower prices as the only vehicle to get into those markets," Seidenberg said.
Verizon reported a 3 percent revenue decline in its core local phone business, in which it continued to lose customers. Both AT&T Corp. and MCI have been able to take away customers by leasing parts of Verizon's network at deep discounts mandated by the Federal Communications Commission. Verizon reported yesterday that the number of residential lines it serves declined during the last three months by 186,000, to 37.3 million.
In addition, the company said yesterday that the total number of business lines it serves declined by 281,000 to 19.7 million, a change the company attributed to the sagging economy rather than competitive pressure.
Verizon paid down $2.7 billion in debt during the quarter as part of a long-term effort to lighten its balance sheet. The company reported that it had reduced its debt to $49.9 billion, a decline of approximately $12 billion from the level of a year ago.
Financial analysts expressed relief that Verizon confirmed its earlier financial guidance for the year, even if it was a modest projection of flat to 2 percent growth in revenue from 2002. Earlier this week, Sprint lowered its guidance for the year, which it blamed on slackening demand for its long-distance and wireless services.