Verizon Connects for Big Q3

It was déjà vu all over again this morning as another ILEC reported a growing dependence on broadband data services and wireless telephony.

On Thursday, Verizon Communications Inc. reported a third-quarter profit of $1.87 billion, or 67 cents a share, on revenues of $19.04 billion. That's up from the profit of $1.8 billion, or 64 cents a share, on revenues of $18.21 billion during the year-ago quarter.

In large part, these solid figures stem from a 14.2 percent increase in Verizon Wireless revenues -- up to $8.4 billion this quarter as the company added 1.9 million new subscribers.

Regarding broadband services, Verizon reported a 10.9 percent increase in data revenues, which rose to $2.2 billion.

During its earnings conference call, CFO Doreen A. Toben said Verizon was pursuing a strategy of “accelerating technology migration” by moving customers from traditional narrowband lines to broadband connections.

As a result, Verizon reported adding a company record 389,000 new broadband connections this quarter and said that the number of wireless and wireline Internet data service users increased 48 percent, to 21.6 million, compared with the year-ago quarter.

CEO Ivan G. Seidenberg, however, declined to specify in the conference call exactly how many adds came from FiOS, Verizon’s fiber-to-the-premises broadband service, and how many from DSL.

“It’s our policy to combine the FiOS and DSL number, primarily for competitive reasons across the market,” he said.

That didn't stop at least one analyst from taking an educated guess. "Verizon noted that FTTP penetration reached 12.4% in the 35 regions where it has marketed the service," writes Simon Leopold, a telecom analyst at Morgan Keegan & Company Inc. "Verizon disclosed total broadband (DSL plus FTTP) net additions of 389,000, and we estimate that Verizon has 136,000 – 149,000 FiOS subscribers and may target a surprising 300,000 by year-end."

FiOS is up against Project Lightspeed from SBC Communications Inc. (NYSE: SBC), a fiber-to-the-node service that SBC says will be ready to serve 2 million customers by the end of the year. SBC last week announced that it will begin putting more money into Project Lightspeed in coming months. (See SBC on Lightspeed: Full Fiber Ahead.)

In contrast, Seidenberg said that FiOS deployment is on track to offer service to 3 million potential customers before year’s end. And, in 2006, Verizon expects to move FiOS deployment along at roughly the same rate, aiming to reach a cumulative 6 million potential customers by December 2006.

Seidenberg said that capital spending will remain relatively flat in 2006, at a range of between $15.4 billion and $15.7 billion, excluding spending related to its merger with MCI Inc. (Nasdaq: MCIP), which should close early next year.

Share prices were only moderately affected in midday trading, rising to $31.06 by 2 p.m. EDT, a 1.54 percent increase from yesterday’s close of $30.59. Earlier this month, the stock had dipped down to $29.13.

In the conference call, Seidenberg said he “felt bad that the stock had drifted down to its two- or three-year all-time low,” but he said the company was “committed to get stock back to levels commensurate with the underlying assets and values.”

— Joe Tuzzo, special to Light Reading