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Verizon profits rise 19 percent

By Bruce Meyerson Ap Business Writer 4 min read

NEW YORK (AP) – Verizon Communications Inc.’s second-quarter profit rose 19 percent, but the big telephone company’s results were slightly shy of Wall Street forecasts and signs of price competition clouded an otherwise powerful showing by Verizon Wireless. Verizon said Tuesday it earned $2.11 billion, or 75 cents per share, in the three months ended June 30, including $336 million from the sale of the company’s telephone operations in Hawaii, as well as some tax benefits and expenses that roughly offset each other. Verizon earned $1.80 billion, or 64 cents per share, a year ago.

The earnings came in a penny a share below many analysts’ forecasts, but Verizon’s shares rose 31 cents to $34.33 on the New York Stock Exchange after the report.

Second-quarter revenue totaled $18.57 billion, up 4.6 percent from $17.76 billion a year ago. Under accounting rules, those figures include 100 percent of the revenue generated by the cellular business, a joint venture with Vodafone Group PLC in which Verizon owns a 55 percent stake.

The revenue from Verizon Wireless rose 14.6 percent to $7.8 billion, as the nation’s second-largest mobile phone business increased its subscriber base by 1.9 million customers to finish the quarter with 47.4 million.

The wireless operation also improved on its industry-leading subscriber retention, reducing the rate of customer losses to 1.2 percent of the subscriber base per month. By contrast, top rival Cingular Wireless reported a “churn” rate of 2.2 percent for the second quarter.

However, the gains in market share and reduction in churn came with a sacrifice: Average revenue per user fell 2.7 percent to $49.42 per month compared with a year earlier, a sign of the aggressive pricing that Verizon Wireless needed to win new customers and keep old ones in a market rife with rival promotions.

Doreen Toben, Verizon’s chief financial officer, said part of the decline resulted from a decision to compete for younger subscribers, a market targeted with success by the youth-oriented brands, Virgin Mobile and Boost Mobile.

“We picked up a lot in the youth segment, which is something we wanted to do,” said Toben.

The gains in both wireless and high-speed Internet subscribers again helped offset the continuing struggles of the traditional phone business at Verizon.

Wireline revenue dipped half a percentage point to $9.46 billion in the second quarter, though Verizon noted that the consumer business showed a slight increase for the first time since the company began reporting those figures three years ago.

The company added 278,000 broadband customers, the vast majority for high-speed internet access, though the figure also reflects subscribers for the new Fios broadband service in markets where Verizon has replaced its copper phone lines with fiber-optic cables.

Verizon also disclosed Tuesday that it now expects capital spending to reach roughly $15.3 billion in 2005, including the cost of the network upgrade and the new infrastructure needed to sell the new cable TV service.

The increase is $700 million more than the company’s previous estimate, though Verizon said some of the increase is related to the rapid growth of Verizon Wireless.

“We see the results of this commitment today in our wireless results and we firmly believe that this stepped up investment is the right long-term strategy for the wireline side as well,” Ivan Seidenberg, Verizon’s chief executive, said in prepared remarks in a conference call. “Our challenge is to move fast enough to develop scale in these growth businesses to offset the decline in our traditional business.”

Seidenberg also said the regulatory approval process for the company’s $8.5 billion deal to acquire long-distance carrier MCI Inc. was proceeding at a pace that could allow the transaction to close by year’s end.

In the first six months of the year, Verizon earned $3.87 billion, or $1.38 per share, on revenue of $36.75 billion. That compares with $3.0 billion, or $1.07 per share, on revenue of $34.81 billion a year earlier.

AP-ES-07-26-05 1353EDT

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