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Verizon's wireless glows as broadband growth hits wall

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POSTED July 19, 2012 9:54 p.m.


 

NEW YORK (AP) — Verizon Communications Inc., parent of the country's largest cellphone carrier, on Thursday said its net income rose 13 percent in the second quarter as its wireless arm pulled in record profits.

Verizon has one foot in the wireless world and one in the traditional, wired phone-company world. In the latter, results were notably weaker. Like other phone companies, Verizon is losing landlines, but has been compensating to some extent by signing up broadband customers. In the second quarter, that trend faltered, as it gained a net of just 2,000 broadband customers — the worst result in four years.

Chief Financial Officer Fran Shammo said the weak showing was in part due to Verizon ending the sale of DSL connections to people who don't have a landline phone account. The effort is part of an attempt to improve profitability. The wired-connection side of Verizon, which still employs nearly half of its workers, is running just above break-even.

Verizon has upgraded part of its phone network with optical fiber, a service it sells as "FiOS." In locales where it hasn't done that, it's losing out to cable companies, who can offer much higher speeds than Verizon can with DSL.

The poor showing comes after Verizon Wireless struck a deal to market cable broadband from Comcast and Time Warner Cable in its stores, a move consumer advocates see as a capitulation by Verizon that will leave many areas with just one viable choice for home broadband: cable.

Shammo said putting profits over growth also means raising FiOS prices, resulting in fewer new FiOS subscribers.

Overall, the New York-based phone company earned $1.83 billion, or 64 cents per share, in the April to June period, up from $1.61 billion, or 57 cents per share, a year ago.

The latest earnings match the average forecast of analysts polled by FactSet.

Revenue rose 3.7 percent to $28.5 billion, also in line with analysts' expectations.

The results come after Verizon shares hit a 10-year high of $46.41 on Wednesday. On Thursday, Verizon shares fell $1.35, or 2.9 percent, to close at $44.54.

Verizon Wireless gained a net 1.2 million subscribers — a strong result in an industry where subscriber gains have tapered off now that nearly everyone has a cellphone. Of the new subscribers, 888,000 were on contract-based plans, which are the most lucrative.

Verizon Wireless has 94.2 million retail subscribers, making it the biggest wireless carrier in the nation. Arch-rival AT&T Inc. is set to report quarterly financial results on Tuesday.

The profit margin at Verizon Wireless was the highest ever, as average monthly fees for contract-signing subscribers rose 3.7 percent from last year, to $56.13. Verizon is benefiting from the growing popularity of smartphones, which come with data fees.

Three weeks ago, Verizon Wireless introduced the biggest-ever change to wireless price plans, ditching most of its plans in favor of one that allows people to share a data allowance over up to ten devices.

Shammo said customers have given the plan a positive reception, and it has even tempted subscribers who have stuck to their old "unlimited data" plans to switch.

Consumer groups have said the plans amount to a price hike, but analysts believe it's a price cut, at least in the short term. On the conference call, the CFO said the new plan isn't expected to cut into service revenues this year.

Verizon Communications owns 55 percent of Verizon Wireless. The rest of the profits flow to partner Vodafone Group PLC of Britain.

 

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