Verizon Communications Inc., the largest U.S. telephone company, reported surging profit yesterday, but its underlying numbers show the industry's struggle to exploit high-growth wireless and broadband services to offset the shrinking residential telephone business.
New York-based Verizon, the dominant residential provider in the Washington area and much of the Northeast, said second-quarter profit rose to $2.11 billion (75 cents a share) from $1.8 billion (64 cents) in the second quarter last year, largely because of gains from the sale of its telephone and directory business in Hawaii.
The company's results, like those of other regional telecom giants SBC Communications Inc. and BellSouth Corp., reflect strength in its wireless businesses that helped compensate for the withering of the traditional local telephone business.
All three companies have made strategic bets that sales of wireless services and broadband Internet access via DSL and fiber-optic lines will fuel growth.
The traditional telephone business is threatened as people abandon land lines in favor of mobile phones, and cable companies and Internet-based providers offer telephone service.
Verizon said it expects to increase its capital spending by about 15 percent this year from last year's $13.3 billion as it pours money into its wireless network and lays fiber-optic cable to provide broadband Internet access and, eventually, television.
"Verizon continues to . . . shift their business mix away from their traditional, land-line voice services," said Daniel E. Zito, a telecom analyst with Legg Mason Wood Walker Inc. "All of them are making that bet."
Verizon's operating revenue shows that its domestic telecom business -- chiefly its local telephone services in the District and 29 states -- contracted to $9.45 billion in the last quarter from $9.49 billion, while the domestic wireless business expanded to $7.85 billion from $6.85 billion.
The company said Verizon Wireless saw an influx of 1.9 million customers in the quarter.
Verizon Wireless is 55 percent owned by Verizon and 45 percent owned by Britain's Vodafone Group PLC.
Excluding special items such as the $336 million contribution from the sale of the Hawaii operations as well as tax benefits and expenses that nearly canceled each other out, second-quarter profit was $1.77 billion (63 cents), down from $1.79 billion (64 cents).
Over the past week, SBC and BellSouth -- which together own Cingular Wireless LLC -- have reported sharp declines in their second-quarter profit, largely because of Cingular's purchase of AT&T Wireless.
San Antonio-based SBC on Thursday reported that its profit for the quarter fell to $1 billion (30 cents) from $1.17 billion (35 cents).
Atlanta-based BellSouth on Monday announced that its profit for the same period slid to $795 million (43 cents) from $996 million (54 cents).
While the declines largely reflected the AT&T Wireless acquisition, the operating figures showed the traditional telephone business contracted at SBC and was essentially flat at BellSouth, while data and wireless revenue grew at both companies.
"A rising percentage of their revenues, and their profits, are coming from wireless, broadband, long distance and even things like directories as those businesses grow and the core legacy wire-line telephone business shrinks," said David Barden, a telecom analyst with Banc of America Securities LLC.
"They continue their strategic initiatives to shift their businesses' reliance away from their legacy . . . wire-line telephone product," he added.