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Verizon Phones in Solid Results

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News Analysis
Light Reading
1/27/2005

Verizon Communications Inc.'s (NYSE: VZ) fourth-quarter earnings continue the trend set by SBC Communications Inc. (NYSE: SBC) and BellSouth Corp. (NYSE: BLS): Flat wireline revenues, with wireless and data services revenues rising steadily (see SBC Puts on a Happy Face and BellSouth's Earth Is Flat).

Verizon’s fourth-quarter profits hit $3.04 billion, or $1.10 a share, on revenues of $18.3 billion, a dramatic increase from its loss of $1.5 billion, or 53 cents a share from the same quarter a year ago. For the year, Verizon earned $7.8 billion, or $2.83 a share, on revenues of $71.3 billion, a 154 percent increase from 2003, when it earned $3.1 billion, or $1.12 a share, on revenues of 67.5 billion.

While the company showed strong year-over-year revenue growth in its wireless division, growing 42 percent from $19.2 billion to $27.7 billion from 2003 to 2004, its wireline revenue dropped 5 percent over the same period.

“In general, we do not believe the fourth quarter’s performance was a market mover,” writes Tim Horan of CIBC World Markets. “We believe strategic considerations are increasingly taking a more prominent role in the stock’s performance, which will continue for some time.”

Horan notes that the day’s headlines were dominated with the rumor of SBC taking over AT&T Corp. (NYSE: T), and that Verizon might be be contemplating some moves of its own, possibly for MCI Inc. (Nasdaq: MCIP) or Sprint Corp. (NYSE: FON). (See SBC/AT&T Could Ignite M&A Frenzy.)

Verizon Wireless contributed more than 40 percent of the company's fourth-quarter revenues, up from 35 percent from the same quarter in 2003. Its $7.34 billion in revenue was up 23 percent from the year-ago period.

Doreen Toben, Verizon’s executive VP and CFO, noted in a morning conference call that the company added 1.7 million wireless customers in the fourth quarter, bringing the number of total new customers for the year to 6.3 million, up 25.1 percent from 2003. “We’ve increased average monthly revenue per customer by 3 percent to $50.32,” she says.

Verizon saw strong growth in its DSL business, adding 306,000 lines for the quarter, bringing its total number of DSL lines to 3.6 million, a 53.5 percent year-to-year growth rate. The company’s data revenues were up 7.4 percent for the year to $7.8 billion.

While the number of DSL lines was growing, residential access lines dropped 466,000 for the quarter, compared to the 706,000 lost in the first quarter. The number of retail business line losses also declined from the first quarter, dropping from 260,000 in the first quarter to 148,000 in the current quarter. In the wholesale market, Verizon lost 93,000 UNE-P lines, bringing its total access line losses for the year to 699,000. "Though the industry remains difficult, Verizon continues to be one of the best performers," writes Anthony Ferrugia, a telecom analyst at A.G. Edwards, in a research note distributed Thursday.

Verizon is continuing with its ambitious fiber build-out, targeting 3 million homes by year-end (see Verizon Flaunts Fiber Plan). While there is some question about its ability to hit its targets, the company appears to be making headway to stave off the loss in revenue due to a decline wireline numbers and wireless churn (see Tracking Verizon's FTTP Progress). The carrier's capital expenditures in 2004 were $13.3 billion, up from $11.9 billion in capex spent in 2003. Next year, Verizon says it will continue investing in fiber access and other growth markets -- boosting capex by about 10 percent.

— Chris Somerville, Senior Editor, Next-Generation Services

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