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Verizon posts 25% profit drop for Q3

Mon, 10/25/2010 - 8:40am
Peter Svensson, AP Technology Writer

NEW YORK (AP) – Verizon Communications, the country's largest wireless carrier, on Friday said its profit fell 25 percent in the third quarter, held back by a one-time charge for a pension settlement and the performance of its landline operations, which barely broke even.

The results show how Verizon has its feet in two worlds: that of the declining traditional phone company and the burgeoning, highly profitable cell phone company.

Verizon's landline business posted operating income of $19 million for the July-to-September quarter, compared with $4.9 billion on the wireless side.

As recently as the second quarter, the landline business had operating income of $214 million. But Verizon sold off profitable, outlying areas with about 4 million phone lines to Frontier Communications on July 1, speeding the decline of the remaining business, which is suffering as households drop their phone lines in favor of relying on their cell phones.

Wireless profits are strong, but New York-based Verizon owns only 55 percent of Verizon Wireless and can only lay claim to that share of the profits. The rest flow to British carrier Vodafone Group, which has wide international interests.

Verizon's ambitious program to replace phone lines with optical fiber in its core service areas has helped it keep customers, but the service is expensive to roll out and doesn't come close to matching the profits of the wireless side. Earlier this year, it stopped expanding the FiOS service to new communities.

Overall, Verizon reported net income of $881 million, or 31 cents per share, in the third quarter. That compares with $1.18 billion, or 41 cents per share, in the same period last year.

Excluding the pension settlement and some other charges, earnings would have been 56 cents per share in the latest quarter, 2 cents more than analysts polled by Thomson Reuters expected.

Revenue slipped 3 percent to $26.5 billion from $27.3 billion a year ago, mainly due to the sale of landline and wireless service areas. The latest result was slightly more than the $26.3 billion analysts had expected.

Verizon shares slipped 34 cents, or 1.1 percent, to $32.18 in morning trading.

Verizon Wireless added 584,000 customers on contract-based plans in the quarter, roughly in line with analyst estimates. It's about half of what it's added in recent years, but still a healthy figure considering that nearly everyone already has a cell phone. However, when looking at all types of subscribers, Verizon Wireless added just 997,000 in the quarter, the lowest figure in a decade.

On Thursday, AT&T, which has fewer subscribers overall, said it added 745,000 contract subscribers in the quarter, helped by the launch of a new iPhone model during the summer.

Verizon Wireless has been touting phones running Google's Android software as its answer to the iPhone. The strategy has been working well, even if it hasn't quite been able to match AT&T's figures. Recent media reports, unconfirmed by the companies, say Verizon Wireless will get to sell a version of the iPhone early next year. Comments from Verizon executives so far appear to downplay that possibility.

On a conference call with analysts, chief financial officer John Killian said Verizon Wireless will try a $15-per-month data plan in the fourth quarter as a limited-time promotion. The idea is to entice more people to try smartphones with a lower monthly price. The plan provides for a limited amount of data traffic each month. Verizon is keeping its $30-per-month unlimited wireless data plan. AT&T put data caps on all new plans starting in June.

"What we believe is that people who are new to the category will probably buy the $15 plan, but over time there will be a lot of migration to the higher end" as they find they need more data, Killian said.

For the fourth quarter, Verizon gave an earnings range that works out to 50 cents to 55 cents per share, excluding items. Analysts had been expecting 54 cents.

Verizon has been cutting jobs on the landline system to try to keep pace with the decline of the business. Killian said 1,500 jobs were cut in the latest quarter, mainly through a voluntary separation offer, and he expects 2,000 to 3,000 to leave before the end of the year. The landline business employs half of Verizon's 195,100 workers.

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