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Verizon post Q2 loss on layoffs

Fri, 07/23/2010 - 8:45am
Peter Svensson, AP Technology Writer

NEW YORK (AP) – Verizon Communications on Friday said it lost $198 million in the second quarter due to a buyout for 11,000 workers.

The company reported a total of 3.2 million FiOS TV customers with the addition of 174,000 this quarter; the company added 168,000 in the first quarter. FiOS TV penetration is 26 percent, based on about 12.4 million homes passed.

On the broadband side, the company added 196,000 new FiOS Internet customers this quarter, compared with 185,000 in the previous quarter, bringing the total to 3.8 million. The company counts a slightly greater number of homes passed for FiOS broadband – 12.9 million – for a FiOS Internet penetration of 30 percent.

FiOS broadband plus DSL gave the company a total of 9.3 million broadband connections. Given the company had 9.3 million total broadband customers this quarter, of which 3.8 million were FiOS subs, and 9.1 million customers last quarter, of which 3 million were FiOS, then the company lost about half a million DSL subs during the second quarter.

Verizon has been upgrading its network in some markets with fiber-to-the-home, through which it provides its FiOS TV, broadband and VoIP services. It severely curtailed its expansion, however. It's now focusing on completing the build-out in areas where it already has a franchise to sell cable TV services over fiber.

The halt is reflected in the company's capital expenditures. In the same quarter last year, it spent $2.3 billion on wireline upgrades and $1.8 billion on wireless. This year, the numbers are reversed, with the higher investment going to wireless.

Verizon CFO John Killian said: "This time last year, FiOS made up about one-third of consumer revenue. FiOS revenues now represent more than 43 percent." His comments were from a transcript of the company's analyst conference call provided by Seeking Alpha.

Though FiOS continues to constitute a growth opportunity, it represents one of the smaller slices of the company's business – about 16 percent. Verizon reported that 83 percent of its consolidated revenues come from wireless and global business customers.

According to Killian, that explains the company's shift in focus from FiOS to wireless, and that's going to be the case for the near future.

Ron Lataille, senior vice president of investor relations, said: "We are taking wireline down this year. I expect that trend to continue as we go into 2011."

Verizon did well in the highly competitive wireless business, attracting 665,000 customers under contract. That's fewer than in past years, but contract-signing customers have been drying up for all carriers this year, and Verizon bested chief rival AT&T Inc., which Thursday reported getting a net 496,000 contracts signed in the quarter. AT&T had help from the launch of a new iPhone model in the last few days of the period.

Asked about adopting tiered pricing, similar to the plan of rival AT&T, Killian said the company is in no rush to change pricing model, though it will continue to monitor the market.

Verizon Wireless has been positioning phones using Google Inc.'s Android software as the alternative to the iPhone, and Killian said this is working well.

"We feel really good about our device portfolio," he told analysts on a conference call.

However, Verizon is less effective at boosting its wireless service revenues, reporting growth of 5.2 percent over last year. AT&T's growth is twice as fast. Also, Verizon's bottom line is hurt by the fact that Vodafone Group, a British company, owns 45 percent of Verizon Wireless.

Most new customers flowed to Verizon Wireless through resellers like Tracfone's Straight Talk service, sold at Wal-Mart. Verizon added 896,000 wholesale customers in the quarter. These pay much less than contract-signing customers, but they are profitable.

Verizon sold off areas with 2 million wireless subscribers to AT&T Inc. and Atlantic Tele-Network Inc. in the quarter to satisfy regulatory requirements for last year's acquisition of Alltel Corp. It's still the largest cell phone company in the U.S., with 92.1 million subscribers, either directly or through resellers. AT&T has 90.1 million.

Just after the end of the quarter, Verizon closed its sale of 4 million phone lines in 14 states to Frontier Communications Corp. for $5.3 billion. The company has been selling off lines in outlying areas to focus on more densely populated areas in the Northeast, Florida, Texas and California.

Killian said that excluding the sold-off businesses, he expects Verizon to earn roughly $1.05 to $1.10 per share in the remainder of the year. Analysts were expecting about $1.06 per share.

The New York-based company has been laying off workers quickly in the shrinking traditional phone business. It offered a buyout to union workers in May, with a $50,000 one-time bonus per employee, improvements to pension payouts and other benefits. Verizon expects 11,000 to take advantage of it and said two-thirds of them had left the payroll as of early July.

Verizon ended the quarter with 210,800 employees, 24,500 fewer than a year ago.

The company said it is considering, but has not yet decided on, more layoffs in Q3.

Excluding the severance costs and other items, earnings beat Wall Street expectations, while revenue was slightly lower than analysts had expected. CFO John Killian projected earnings for the rest of the year that would be roughly in line with analyst expectations.

Its shares rose 89 cents, or 3.3 percent, to $27.89 in pre-opening trading.

The nation's second-biggest phone company said it lost the equivalent of 7 cents per share in the April-to-June period. That compares with net income of $1.48 billion, or 52 cents per share, in the same period last year.

Excluding various charges, mainly for the buyouts, earnings would have been about 58 cents per share in the latest quarter. That is 2 cents more than analysts surveyed by Thomson Reuters had expected, on average.

Verizon said its revenue slipped 0.3 percent to $26.8 billion from $26.9 billion a year ago, though that was in part because of the one-time effect of a change in accounting for wireless data plans. Without that change, revenue would have grown 0.7 percent, still slightly short of analyst expectations at $27.1 billion.

– CED's Brian Santo contributed to this report

More Broadband Direct 7/23/10:

•  Verizon post Q2 loss on layoffs
•  Charter backs permanent Rural Health Care program
•  Cox lays off 70 in Georgia
•  Town backs resident over TWC's $12K install bill
•  Qwest rolls out 'Heavy Duty' Internet service
•  Alcatel-Lucent debuts small-market IPTV system
•  Ericsson's net sales drop in Q2
•  Nokia's Q2 profit falls 40% to $290M
•  Ad industry seeks image makeover of its own
•  Windows 7 sales boost Microsoft's Q4 net income

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