In the midst of an otherwise dismal earnings season for service providers, Verizon Communications Inc. (NYSE: VZ) posted a revenue increase in its fourth-quarter/year-end report today (see Verizon Bolstered by Wireless). Helped by growth in wireless and DSL services, the carrier reported a $2.3 billion profit for the quarter, meeting Wall Street expectations.

Going forward, the carrier is cautiously optimistic, predicting revenues to remain flat or rise by up to 2 percent in 2003. That’s a bit better than the roughly 1 percent increase analysts have forecasted.

Highlights of today's report:

Not exactly a chart-busting quarter -- but, compared with the two other regional Bells that have reported earnings so far, Verizon has reason to celebrate. Last week BellSouth Corp. (NYSE: BLS) announced that sales for the fourth quarter fell 8 percent, and yesterday SBC Communications Inc. (NYSE: SBC) said its sales for the same period dipped 6 percent.

Competitive carriers, too, have been struggling in the sluggish economy. Last week, AT&T Corp. (NYSE: T) announced a revenue loss of 8.6 percent for the quarter (see BellSouth Reports Q4, SBC's Revenues Slide, and AT&T Results Disappoint).

Industry observers say Verizon managed better results than its peers in large part thanks to its wireless results. “Verizon is doing very well in its wireless division,” says Davenport & Co. LLC analyst F. Drake Johnstone, pointing out that the carrier also did better on the data growth side than its competitors.

Verizon, which holds a 55 percent stake in Verizon Wireless, also said this morning it will withdraw an initial public offering registration for the wireless joint venture. The need for new sources of funding is no longer there, the carrier said, due to the business’s strong cash flow, as well as a favorable Supreme Court decision on a wireless spectrum auction.

Verizon continues to grouse about governmental unbundled network elements platform (UNE-P) regulations, which are currently under Federal Communications Commission (FCC) review. The regs require RBOCs like Verizon to lease elements in their networks, like switches, to competitors at low fixed wholesale prices (see Will Powell Pull the Plug?). For the fourth quarter, Verizon claims it lost more than 400,000 access lines to UNE-P competition.

Verizon doesn’t expect much improvement this year. “Our view of the economy is that there will not be a significant boost… in 2003,” says Verizon's chief financial officer, Doreen Toben. “We have assumed business as usual for 2003… meaning that UNE-P will be around for a while longer, which is unfortunate.”

A question mark hangs over Verizon's long-distance activities. In return for opening up their networks to competitors, the RBOCs have received regulatory approval to enter the long-distance markets in many states (see RBOCs Get Long Distance Go-Ahead). Verizon says it added 566,000 new long-distance customers during the fourth quarter, reaching a total of 10.4 million customers, making it the third largest long-distance customer behind AT&T and WorldCom Inc. (OTC: WCOEQ).

Ironically, though, while the number of Verizon long-distance customers is growing, the company saw its long-distance revenues in the quarter shrink. Verizon claims the decline is due to a one-time charge, though at least one analyst sees a trend:

“Even if there is a one-time charge, the last few quarters show that the revenues aren’t growing much,” says Davenport's Johnstone.“If the Bells had realized how awful the long-distance market was, they probably would have been better off not opening their networks to competitors... Be careful what you wish for.”

In the end, Johnstone believes, the chief value of long-distance service may lie in its value as a customer retention mechanism, which can then be used to offer popular bundled packages.

Overall, investors seemed enlivened by the rare spot of telecom good news. Following this morning's announcement, Verizon's stock price jumped more than 3 percent to $37.19 a share. Lehman Brothers also upgraded the carrier from Equal-Weight to Overweight following the report.

— Eugénie Larson, Reporter, Light Reading