Robust sales in its wireless division overcame declines in traditional local telephone business during the second quarter, Verizon Communications Inc. said yesterday.
For the second quarter in a row, the majority of Verizon's revenue came from wireless, data and long-distance services. The nation's largest telephone company reported that its number of residential phone lines and revenue from traditional residential service declined -- another sign of the fundamental transformation facing the telecommunications industry.
Verizon reported a second-quarter profit of $1.8 billion (64 cents per share), compared with $338 million (12 cents) for the same period last year. However, its earnings were offset last year by significant one-time charges, including $931 million related to its investment in a Mexican wireless operator.
Total revenue for the three months ended June 30 was $17.8 billion, a 6 percent increase compared with the same quarter last year. Revenue at Verizon Wireless grew 25 percent, to $6.8 billion from $5.5 billion. Verizon Wireless is a joint venture with Vodafone Group Plc, a British company with a 45 percent stake in the firm.
Richard G. Klugman, a telecommunications analyst with Jefferies & Co., said yesterday that Verizon's reported profit and revenue growth should be considered in light of last year's one-time charges and that the company owns only 55 percent of Verizon wireless. If those factors are considered, Verizon's revenue growth was 2.7 percent and profit is actually down compared with last year, Klugman said in a note to investors.
Verizon is operating in a market where technology is quickly changing the face of the industry. Millions of consumers have abandoned their wired phones and depend solely on their mobile phones. Fledgling competitors are entering the market with Internet-based telephone services that allow users to make calls over high-speed Internet connections. After years of delays, cable companies are also beginning to roll out their own versions of Internet-based phone service.
"I think ultimately the company, like its [regional telephone company] peers, will have difficulty with all the competition and substitution issues," Klugman said.
The regional telephone companies grew at a slow but steady pace for decades. But in the past five years, increased competition and technological changes have created uncertainty in the industry and uneven results for investors.
This week, SBC Communications Inc. reported flat revenue for the second quarter and a 16 percent drop in profit. BellSouth Corp. reported flat revenue and a 4.7 increase in profit. Qwest Communications International Inc., the smallest of the four regional telephone companies, is to report its second-quarter results next week.
Verizon reported yesterday that its total number of residential telephone lines is down 4.4 percent, to 35.3 million. During the last quarter, Verizon lost 519,000 residential lines. Revenue in its traditional local telephone business declined 2.9 percent, from $9.9 billion to $9.6 billion.
Like other regional phone companies, Verizon has been able to offset losses in the local business by aggressively expanding into the long-distance market. Long-distance revenue grew 14.7 percent, accounting for just over $1 billion in revenue.
Verizon is also gaining ground in the high-speed Internet market, which has been dominated by cable companies. Verizon offers customers high-speed Internet for $29.95 a month. In contrast, cable companies are charging as much as $45 a month for Internet access, although speeds are generally higher than those provided by the telephone companies' digital subscriber line technology.
Cable continues to slightly outpace telephone companies in signing up new Internet customers, but the competition has become much tougher in the past year, according to Cynthia Brumfield, senior analyst with Pike & Fischer, a media research firm.
Much of Verizon's success in the long-distance and high-speed Internet sectors stems from its ability to bundle the services with its traditional local phone service. More than 50 percent of its customers subscribe to two or more offerings.
Last week, AT&T Corp. blamed the ability of Verizon and other regional phone giants to package local with long distance as a key reason for its decision to abandon the consumer market. Instead, AT&T said it will focus on the business customers that account for 75 percent of its revenues.
As it has for the past several years, Verizon also took steps to improve its bottom line by cutting costs. During the past year, it reduced its labor force by 14,000 workers, almost exclusively through retirement. At the end of June, Verizon employed about 208,000 people. It also paid down its debt by $3.5 billion, to $41.9 billion.
Shares of Verizon increased almost 4 percent, or $1.36, to close at $37.86 yesterday.