Verizon Profit Tops Estimates on Rising Data Spending

Updated:2009/4/28 13:18

Verizon Communications Inc., the second-largest U.S. phone company, posted first-quarter profit that topped analysts’ estimates as customers spent more on services like text messaging.

Earnings amounted to 63 cents a share, excluding costs such as acquisition expenses. That beat the 59-cent average of estimates compiled by Bloomberg. Revenue from services such as Web surfing advanced 56 percent.

Sales rose 12 percent to $26.6 billion, with the purchase of Alltel Corp. helping Verizon to overcome declines in spending by corporations hurt by the recession. Customers paid extra for data plans to check e-mail and surf the Web on phones like Research In Motion Ltd.’s BlackBerry Storm, with those customers paying almost twice as much a month as the overall average.

“They had a two-for-one BlackBerry promo that I think helped their numbers,” said Todd Rethemeier, a New York-based analyst at Hudson Square Research, who advises investors to hold the shares and doesn’t own any. The falling spending by companies is “worrying to see, because the business segment is so important for Verizon.”

Verizon has positioned the BlackBerry Storm to compete with AT&T Inc.’s Web-capable phones, such as Apple Inc.’s iPhone. AT&T, the exclusive carrier for that handset in the U.S., also posted first-quarter profit that topped analysts’ projections last week after luring more customers with the touch-screen device.

Corporate Customers

Sales in the unit serving corporations, which accounts for 14 percent of revenue, fell 3.4 percent from a year earlier as those customers trimmed payrolls and operating expenses. Call volume in that unit also declined after Verizon raised prices in some less profitable areas. Revenue from the wholesale business, which lets customers resell Verizon’s service under their own names, declined 9.2 percent.

“You’re going out of business, you’re laying off employees, you’re going to reduce numbers of data cards” and other services, said Chris Larsen, a New York-based analyst with Piper Jaffray & Co. He has a neutral rating on the shares.

Verizon dropped 46 cents to $30.54 at 4 p.m. in New York Stock Exchange composite trading. The shares have declined 9.9 percent this year. Dallas-based AT&T is the largest telephone company in the U.S.

Verizon’s net income amounted to $3.21 billion, or 58 cents a share. A year ago, based on old accounting rules, Verizon reported net income of $1.64 billion. Taking into account its partnership with Vodafone Group Plc, year-ago net income was $3.05 billion.

New Growth

Verizon added 1.3 million retail subscribers, not counting the Alltel acquisition. J.P. Morgan Securities Inc. analyst Michael McCormack forecast 1.28 million new customers. Including subscribers acquired with Alltel, retail wireless customer rolls increased to 86.6 million from 84.1 million.

The wireless business is the most profitable and fastest- growing as handsets evolve to increasingly mimic the functionality of computers, giving the companies more opportunities to sell service.

Verizon and Alltel reported a combined first-quarter operating revenue of $25.8 billion a year earlier, according to data on Verizon’s Web site.

‘Netbook Proposition’

Available wireless customers are harder to come by as penetration levels in the U.S. approach 90 percent, according to wireless industry association CTIA. Verizon has begun searching for new ways to grow, including marrying its wireless service with netbooks, mini-laptops that often sell for less than $500, a person close to the project said.

“Netbook proposition, that’s kind of one arrow in our arsenal,” Chief Financial Officer John Killian said in an interview. The company is examining other new types of devices, although he declined to be specific.

Verizon also is looking to its FiOS business to accelerate revenue growth. The business sells high-definition television and high-speed Internet access via fiber-optic cables routed directly to a customer’s home.

The FiOS service nearly doubled TV subscribers from a year earlier, adding 1 million customers for 2.22 million users total. FiOS Internet service subscribers increased 56 percent to 2.78 million.



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