TELECOM Digest OnLine - Sorted: Verizon Looks Past the Wires

Verizon Looks Past the Wires

Mark Harrington (
Wed, 27 Jul 2005 13:19:09 -0500


Faced with a continuing decline in its traditional landline business
while fielding explosive growth in wireless, Verizon Communications
Inc. yesterday said it would accelerate spending this year on
wireless and broadband TV initiatives.

The news came as Verizon reported earnings climbed 18 percent to $2.11
billion on a 4.6 percent revenue increase to $18.57 billion. Most of
the earnings increase was tied to the sale of landline and directory
operations in Hawaii, and other onetime items. Without them, earnings
were flat at $1.8 billion.

Verizon said it added 1.9 million new wireless customers in the
quarter, a 25 percent increase and its best quarter to date in the
sector, but saw traditional landlines decline 3 million from the
prior-year quarter -- to 50.7 million from 53.7 million a year ago,
spokesman Robert Varettoni said.

While Verizon has seen increases in broadband DSL service, it
acknowledged that competition has impacted traditional landline
business, which has been on a years-long slide. One factor was the
acceleration of voice-over IP service, where Cablevision Systems
Inc. has seen explosive growth.

Cablevision saw subscribers to its Optimum Voice service jump from
around 71,000 lines in the first quarter of last year to more than
400,000 now. "Our voice-over IP is the most highly penetrated in the
country," Jim Maiella, a Cablevision spokesman, said yesterday. Around
1,000 new customers a day sign up, he said.

But analysts aren't convinced cable will vanquish phone companies
anytime soon.

Peter Rhamey, who tracks Verizon for BMO Nesbitt Burns, a
Toronto-based financial services company, allowed that Verizon was
losing some landline telephone business to companies like
Cablevision. But he said he expects that it will in large part be
offset by the easing of regulations that forced Verizon to offer cheap
line-lease agreements to rivals such as MCI and AT&T. (Verizon is in
the process of acquiring MCI.)

Analysts have long realized the "second wave of competition is coming
from cable companies," Rhamey said. But "I don't necessary see a huge
line loss from cable."

On a conference call with analysts yesterday, Verizon chief executive
Ivan Seidenberg said he expects the number of traditional wirelines to
continue to decline, but said Verizon was "seeing a steady turnaround
in revenue performance, as we ramp up our growth initiatives around
broadband, long distance and Enterprise Advance," its corporate data

"Our challenge, of course, is to move fast enough to develop scale in
these growth businesses, to offset the decline in our traditional
business," he said.

Toward that end, Verizon said it would up its capital expenditures
this year by $650 million to $15.3 billion. It had previously said
2005 capital spending would increase only 10 percent.

Doreen Tobin, Verizon's chief financial officer, said the increase was
"primarily" tied to the wireless business, "the result of the very
strong growth at Verizon Wireless, and some increased spending related
to the FiOS deployment as we get ready to roll out video, and do the
planning and engineering work to prepare for our 2006 deployment."

Seidenberg said Verizon was "moving aggressively to build FiOS," the
company's fiber-based TV initiative. He said Verizon expects to
accelerate market share growth in broadband and corporate data markets
in the second half of the year.

Copyright 2005 Newsday Inc.

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