Verizon took a knock from UBS Investment Bank today, which downgraded the U.S. telco from "Buy" to "Neutral" and lowered its earnings estimate for the second half of 2009.

UBS has cut its earnings per share (EPS) estimate for Verizon to $2.42 for 2009, down from the previous estimate of $2.52.

Here's why:

UBS Analyst John Hodulik sees trouble looming for Verizon Wireless in the second half of this year. The largest wireless operator in the U.S. is being squeezed at the high end of the market by AT&T's iPhone and at the low end of the market by Sprint and T-Mobile, which are attempting more aggressive with pay as you go plans.

Hodulik writes in his note today, "We no longer expect wireless ARPU [average revenue per user] to grow in 3Q... as pressure on voice offsets growth in data." Even though UBS expects data ARPU to grow in the second half of this year at around 20 percent, it won't be enough to compensate for the falling voice ARPU.

In addition, the analyst says that more downside to ARPU could be in store for Verizon in the next few quarters because of "the iPhone’s ability to attract high-end subscribers... [and] Sprint and T-Mobile’s attempts to turn their businesses and increasingly aggressive prepaid plans." (See Verizon Lags AT&T in Q2 Subs Game.)

And things aren't looking bright on the fixed-line side of the business either, in UBS's view. "Declining profitability" in the fixed-line business is, in fact, the primary reason for lowering the earnings forecast. (See Verizon Feels the Wireline Drag and Wireless Pumps Up Verizon in Q1.)

As Hodulik writes, the pressure on earnings appears to come from several factors, including "increased FiOS promotions, slower headcount reductions, increased outside repair given bad weather and worsening business trends."

Verizon's share price was down 2.2 percent to $30.31 in early afternoon trading.

— Michelle Donegan, European Editor, Unstrung