by Ritsuko Ando
Verizon Communications Inc. on Monday posted a higher quarterly profit
on strong wireless growth, but shares fell as Internet subscriber
additions disappointed some analysts, and higher expenses underscored
concerns about its costly high-speed network project.
Analysts said Verizon Wireless' subscriber growth had exceeded their
high expectations, but growth in high-speed Internet customers was
weaker than expected amid fierce competition from cable operators.
"One of the specific disappointments is the lack of strong growth in
broadband Internet subscription, although overall the results were
good," said Albert Lin, an analyst at American Technology Research.
Verizon's third-quarter income excluding some special items rose to
$2.0 billion, or 68 cents per share, from $1.8 billion, or 66 cents
per share, in the year-ago quarter.
Wall Street on average expected earnings before items of 66 cents a
share, according to Reuters Estimates.
Including special items such as pension settlement charges and costs
related to the merger and integration of MCI, it reported quarterly
earnings of 66 cents per share, compared with 67 cents per share in
the same quarter a year earlier.
Verizon Communications' third-quarter operating revenue rose to $23.3
billion, up 25.8 percent year-on-year.
Verizon said it added 448,000 net high-speed Internet connections,
which include digital subscriber lines (DSL) and the more advanced
fiber-optic lines, known as FiOS. Some analysts said they had expected
around 500,000 net additions.
Some analysts also said the 7.5 percent fall in domestic wireline
subscriptions was higher than expected.
Shares in Verizon, the second-biggest U.S. telephone company, fell 3
percent to close at $37.65. They had risen 30 percent since the start
of the year on expectations of growth in FiOS Internet and television
services.
FiOS CONCERNS
Analysts were also concerned about spending on FiOS, the fiber-optic
network for Internet and television services, although most agreed the
investment was needed for long-term growth amid declining traditional
phone subscribers.
FiOS TV, together with Verizon's Internet and phone services, is also
aimed at competing against cable operators' all-in-one packages of
video, Internet and phone services.
Verizon said it had 118,000 FiOS TV customers by the end of the third
quarter, exceeding its target of 100,000. It said last month it
expects to attract 175,000 TV customers by year-end.
It expects FiOS to cut earnings by between 31 cents and 32 cents a
share for full-year 2006, compared with its previous forecast of 28
cents to 30 cents.
Chief Financial Officer Doreen Toben said FiOS will hurt earnings by
the same amount in 2007.
The company, like its bigger rival AT&T, has benefited from strong
growth in mobile phone subscriptions in the past few years, as
traditional phone line users decline.
Verizon Wireless, of which Verizon owns 55 percent, added 1.9 million
net customers in the third quarter, bringing the total to 56.7 million
customers. The market had expected 1.7 million in net additions,
according to a Reuters survey of nine analysts.
Verizon Wireless revenues grew 18.2 percent to $9.9 billion, the
company said. Vodafone Group Plc (VOD.L) holds the remaining 45
percent stake in the wireless venture.
"It was a very strong quarter for wireless. I wouldn't want to
minimize that importance. It's just that wireless strength was
somewhat expected," said A.G. Edwards analyst Kent Custer.
Some analysts cited worries about slowing U.S. economic growth as an
overhang on the stock after data on Friday showed third-quarter GDP
grew at its slowest pace in over three years, although Toben said she
had not seen an impact.
"I know what the GDP numbers say but companies have strong
earnings. At the moment, we're bullish," she told Reuters.
Copyright 2006 Reuters Limited.
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Ritsuko Ando (reuters@telecom-digest.org)