UPDATE: Verizon 2Q Net Up 12%; Wireless Offsets Weak DSL

(Updates stock quote in sixth paragraph. Adds executive comments and background information in 11th, 15th, 16th and final paragraphs.)

NEW YORK -(Dow Jones)- Verizon Communications's second-quarter net income rose nearly 12% as continued strength in wireless covered for steep declines in its traditional landline and DSL businesses.

The New York telecommunications company Monday reported second-quarter net income of $1.88 billion, or 66 cents a share, compared with a year-earlier profit of $1.68 billion, or 58 cents a share.

Excluding one-time items, Verizon earned 67 cents a share.

Revenue, meanwhile, rose slightly to $24.12 billion from $23.27 billion a year ago.

While earnings exceeded Wall Street's earnings estimate of 65 cents a share, revenue fell short of analysts' projection of $24.18 billion.

Shares traded recently at $34.10, down 35 cents, or 1%.

"You're seeing a marked difference between Verizon and AT&T in terms of economic impact," said Christopher King, an analyst at Stifel Nicolaus & Co. "Verizon doesn't seem to be seeing that at all."

Wireless was again the driver. The company said that essentially all of its previously reported 1.5 million net new wireless customers signed long-term contracts, indicating it was taking a larger share of the industry's more valuable customers at a time when more than four out of every five consumers already own a cellphone. Verizon Wireless, a joint venture with Vodafone Group, reported its turnover rate fell to an industry-low of 1.1%.

"Wireless really continues to be stunningly impressive," King said.

A bigger test will be in the third quarter, when the carrier faces off against the Apple iPhone. President and Chief Operating Officer Denny Strigl said that the impact of the new iPhone was similar to the first launch and that the carrier would fight it with multiple new handsets.

Verizon Wireless will be turning up the pressure on the industry when it completes its $28.1 billion acquisition of Alltel Corp., expected by the end of the year. The merger will make Verizon Wireless the largest U.S. carrier by subscriber base.

The landline business, however, was far less impressive. Its most high-profile service, FiOS TV, added 176,000 net new customers; Bank of America had projected 260,000 net new additions.

While Verizon added 187,000 FiOS Internet customers, it lost 133,000 DSL customers, bringing its net broadband additions to 54,000. The second quarter is typically a weaker period as college students tend to disconnect their lines when going home for the summer. Verizon has had to face a slumping DSL business as it shifts its focus to FiOS.

About 25% of the DSL losses came from migration to FiOS, according to Chief Financial Officer Doreen Toben. But in areas where FiOS isn't available, the company hasn't been able to keep up with the speed game, she said in an interview with Dow Jones Newswires. She noted the high penetration rate for high-speed Internet meant an inevitably slower growth rate for the company.

Strigl said he expects FiOS TV to pick up in the third quarter. Helping results will be strong promotions and its launch of FiOS TV in New York City, which began Monday. The company plans to make the service available to 30% of homes in New York City and 57% of Manhattan by the end of the year.

The number of total switched access lines fell 8.5% to 38.3 million.

In addition to a deteriorating landline business, Verizon faces the prospect of a strike. Its existing contract with 50,000 Communications Workers of America workers expires this Saturday, and the union members have authorized a strike already.

Several thousand CWA members staged a demonstration in front of the Verizon headquarters in downtown Manhattan on Saturday, blanketing the streets in a sea of red shirts and protest signs seeking better health care and job security.

While the two sides have been bargaining for several weeks, "Right now, we're disappointed by the pace of progress," said Bob Master, a spokesman for the CWA.

Strigl, however, said he was optimistic that Verizon would reach a fair settlement for the company and that the two sides were making good progress.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 28th July 2008