Verizon earnings up 4.5 percent

By PETER SVENSSON,

Verizon Communications Inc. on Monday reported second-quarter earnings that rose 4.5 percent from a year ago, mainly due to its successful cell phone division. The results met analysts' expectations.

Verizon, the country's second largest telecommunications company, earned $1.68 billion, or 58 cents per share, in the March to June period, up from $1.61 billion, or 55 cents per share, in the same quarter last year.

Last year's figure included the earnings from a number of business that have since been sold or spun-off, including the high-margin Yellow Pages business. Excluding those businesses, earnings in last year's second quarter were 43 cents per share.

Analysts polled by Thomson Financial were expecting earnings of 58 cents a share in the most recent quarter.

Revenue rose 6.3 percent to $23.3 billion.

Meanwhile, Verizon Wireless said Monday it has agreed to buy Rural Cellular Corp., which provides cell phone service in 15 states under the Unicel brand, for $757 million, or $45 per share.

That's a hefty premium over the $31.81 price for Rural Cellular shares at Friday's close, but the stock hit a high of $46.34 in early July, fueled by acquisition speculation.

In morning trading, the stock soared to $42.67.

Rural Cellular, based in Alexandria, Minn., has 716,000 subscribers. Some of them use phones with the same technology that Verizon Wireless uses, called CDMA, while others use GSM phones compatible with AT&T's and T-Mobile USA's networks.

Verizon Wireless said it plans to convert the GSM subscribers to CDMA service, but will maintain the GSM network for roaming by subscribers of other carriers.

Verizon is taking on about $1.9 billion in debt along with the acquisition, but said it expected the acquisition to save it $1 billion in roaming fees and operations expenses. Verizon Chief Executive Ivan Seidenberg said he sees the acquisition closing in the first half of next year.

Verizon shares fell 70 cents, or 1.6 percent, to $41.30 in midmorning trading.

Telecom analyst Thomas Watts at Cowen & Co. attributed the drop to traders selling the acquirer and buying the acquired, a common strategy. As contributing factors, he pointed to Verizon reporting somewhat more phone line losses than expected, along with weak broadband sales.

But overall, he said, he came away with "a positive feeling in the quarter," and sees the company continuing to boost its earnings.

Verizon Wireless added 1.6 million new customers in the second quarter, but lost 300,000 through the bankruptcy of Amp'd Mobile, which bought wholesale access to Verizon Wireless' network and resold it. Verizon Wireless ended the quarter with 62.1 million subscribers, just short of AT&T's 63.7 million.

Verizon Wireless is a joint venture of Verizon Communications and Vodafone Group PLC of Britain. All of its revenue is counted on Verizon Communications' books, but only 55 percent of its profits — the rest go to Vodafone.

Addressing competition from Apple Inc.'s iPhone, a much hyped handset introduced a month ago exclusively on AT&T's network, Verizon President and Chief Operating Officer Denny Strigl acknowledged the company has "seen an impact" on the rate of subscribers porting numbers to and from Verizon Wireless.

However, Strigl said, the company last week returned to adding two cellular customers for every one that it loses.

On the wireline side, revenues declined 1.1 percent to $12.6 billion, as Verizon kept losing former MCI long-distance customers and traditional copper phone lines.

However, retail customers in Verizon's local-phone service area spent almost 11 percent more, or an average of $57.47 per month, as they signed up for broadband Internet service via fiber optics.

The fiber-optic broadband service, FiOS, added 203,000 subscribers in the quarter for a total of 1.1 million. Of those, 515,000 were also signed up to get TV through the fiber, a tenfold increase from a year ago.

For the first time, Verizon signed up more subscribers to get broadband Internet service through FiOS than through the copper lines for DSL, or digital subscriber line.

It added just 85,000 DSL subscribers, down from 239,000 in the first quarter.

"Frankly, we weren't as focused as we used to be on DSL for the quarter," Strigl said. "We have taken a lot of the technicians and the service reps that used to work DSL and tried to quickly get them up to speed on FiOS."

Strigl said the company aims to get DSL customer recruitment numbers back up.