Verizon Boosted by Wireless

Verizon Communications Inc. (NYSE: VZ) was encouraged by DSL installations and ecstatic about wireless contributions in a second-quarter earnings report that showed improved financial results on many fronts.

Verizon reported second-quarter 2004 earnings of $1.8 billion, or 64 cents per diluted share, on revenues of $17.8 billion, up 6.0 percent compared with $16.8 billion in the second quarter 2003.

As part of its strategy to offset mobile wireless substitution and competitive pressure in the voice market, Verizon said its second-quarter DSL count stood at a total of more than 2.9 million lines or more than 1 million net additions over the past year.

The company's 280,000 new DSL lines in the quarter was not as many as the first quarter's 345,000 new lines, but Verizon appears pleased that the number represents a 52.5 percent year-over-year growth rate and that DSL contributed a 5.7 percent growth in total data revenues.

"We made headway in offsetting an anticipated decline in traditional wireline revenues with new revenues from broadband DSL, long-distance, data, and Enterprise services," says Ivan Seidenberg, Verizon chairman and CEO.

Nevertheless, during the second quarter, Verizon's traditional telco activities were reduced by about 519,000 residential land lines and 155,000 business enterprise land lines, some of the former said to be seasonal, due to college student disconnects. Traditional domestic telecom operating revenues for the second quarter fell 2.9 percent to $9.6 billion from the same period last year.

The second-quarter results were greatly aided by wireless performance. Quarterly revenues for wireless were $6.8 billion, up 25 percent compared with $5.5 billion in the second quarter of 2003; Verizon pointed out this was the eighth consecutive quarter of double-digit, year-over-year wireless revenue increases.

Wireless activity added approximately 1.5 million customers for a total of 40.4 million; there were also record margins and an all-time low churn (customer turnover) rate.

Better margins and cash flow have resulted in the company investing more capital to fund wireless, including new spectrum and other growth initiatives such as data and broadband, says Doreen Toben, Verizon's CFO. These three segments accounted for 52 percent of Verizon's second-quarter 2004 revenues, compared with 46 percent of the company's second-quarter revenues last year.

Toben says increasing amounts of capital spending (capex) are being allocated to these and other growth areas such as the company's residential FTTP build-outs and "Enterprise Advance" service launches, which include VOIP, IP VPNs, and Ethernet connectivity. These areas grew from 43 percent of the $5.1 billion capex budget in 2003's first half to 56 percent of the $5.7 billion capex in 2004's first half. Capex allocations for the traditional telco network activities fell from 57 percent to 44 percent during those respective periods.

About 650 new corporate customers were signed on for the Enterprise Advance services, according to Seidenberg. He says investments in broadband DSL, long-distance, data, and enterprise services are paying off, noting that the DSL and VOIP strategies fit together well.

Revenues for all long-distance services increased 14.7 percent to $1.0 billion in the quarter, compared with the second quarter of 2003; also, the company said it had 16.8 million long-distance lines in service as of the end of the quarter, a 21.4 percent year-over-year increase.

The company also has seen progress in consumers taking up more bundled services (landline telephony, DSL access, and wireless), with revenue growth in that area said to be about 35.1 per cent. Approximately 50 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or Verizon DSL or both.

Verizon also improved its balance sheet. Total debt at the end of the second quarter 2004 was $41.9 billion, compared with $45.4 billion at year-end 2003. — Frank Barbetta, Analyst, Light Reading Insider

For more info on the state of industry financials, check out the coming Light Reading Live! event:

  • Light Reading's Telecom Investment Conference, in New York City, November 10.

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