Analysts Prod Verizon on Portability
Verizon Communications Inc. (NYSE: VZ) blamed consumers and its unions for lacklustre results in its third-quarter earnings report today. And while results for Verizon's wireless business were bullish, analysts are concerned the company is underestimating the potential impact of wireless number portability.
Verizon’s profit totaled $1.8 billion, or 64 cents a share, compared with $4.4 billion, or $1.60 a share, a year ago -- a drop of 59 percent year over year. Verizon said its third-quarter 2003 revenues rose to $17.16 billion from $17.11 billion in the year-ago quarter.
Net debt was reduced to $44.7 billion at the end of the third quarter 2003, from $51.8 billion at year-end 2002. Gross debt was $45.5 billion at the end of the third quarter 2003, down $7.8 billion from $53.3 billion at year-end 2002.
Verizon had warned that its third-quarter results would be eroded by weak demand and labor costs, citing a $100 million expense related to pension settlements for workers in its recent labor contract negotiations (see Verizon Inks Deal With Unions).
The company’s local telephone revenues, coming chiefly from services in the carrier's traditional 14-state region in the Eastern U.S., dropped to $9.9 billion, a decline of 4.1 percent from the year-ago third quarter and roughly flat compared with the second quarter. Verizon execs blamed pressure from wireless and cable subscriptions for the reduced local sales.
On a brighter note, Verizon appears to be making headway in long distance and DSL. It added 1.3 million new long-distance customers, ending the quarter with 15.9 million total lines, up 27 percent since the end of 2002. Verizon also added 185,000 new DSL customers, to end the quarter with 2.1 million total lines.
Verizon declined to offer guidance for next year until its fourth quarter earnings in January 2004.
Verizon Wireless reported operating income of $1.12 billion, compared to $970 million for the previous quarter. Total revenue for the segment, including sales of wireless services and equipment such as cell phones, rose to $5.94 billion from $5.3 billion. Average monthly revenue per customer rose slightly from a year ago to more than $50, Verizon said.
But analysts are concerned about the company's state of preparedness for wireless number portability, which goes into effect November 24 (see Verizon Q3 Profits Fall). On a conference call this morning, Wall Streeters repeatedly asked how Verizon plans to cope.
A recent study shows that as many as 42 percent of wireless subscribers are aware of the rule, which enables them to take their telephone numbers with them when they switch to another carrier.
That means the wireless industry should be prepared to handle approximately 30 million porting requests, or 60 million transactions, during the first 12 months the rule is in effect, according to the report, since each request must be processed by two wireless providers (see WNP to Trigger Flood of Moves).
Verizon announced its plans to prepare last month (see Verizon Preps Portability). But analysts seemed unconvinced. One asked why Verizon wasn't taking advantage of the situation to introduce marketing campaigns, as its competitors have done.
Verizon CEO Ivan Seidenberg replied: “I don’t mean to be arrogant, but if you notice all the other carriers are doing their advertising now… We don’t need to get out there and shoot all our bullets off at the first sound of the gun… It wouldn’t be smart of us to let people know what we think the flow will be, but we will have the appropriate activities in place.”
Seidenberg said “nobody really knows what’s going to happen” when the rule comes into force. However, he claims Verizon has trained all its retail staff in preparation for it and says the company is operationally ready.
Analysts also asked execs how many customers they expect will make the move from the carrier's wireline to wireless services as number portability evolves. "We’re not expecting a huge migration here," he said.
Verizon Wireless reported 1.3 million new customers in the quarter, for a total of 36 million, but churn increased to 1.85 percent from 1.7 percent in the second quarter. “This could serve to give something back to AT&T Wireless and Sprint PCS, who got punished for higher churn last week,” said Greg Gorbatenko, analyst with Loop Capital Markets LLC, in a note to investors (see Sprint Pays for Wireless Foray, AT&T Wireless Posts Strong Q3).
Verizon shares were trading at $33.03 a share late today, down $0.17 (0.51%).
— Jo Maitland, Senior Editor, Boardwatch