Verizon Looks Past the Wires


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 initiative.

"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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