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Wall Street Journal, July 29, 2008 article


The Wall Street Journal

July 29, 2008


Verizon Profit Increases
On Wireless Strength

July 29, 2008; Page B4

Verizon Communications Inc.'s second-quarter profit rose 12% as strong wireless results covered for slowing broadband growth and a steep decline in the company's land-line business.

Associated Press
Verizon Wireless's $28.1 billion acquisition of Alltel Wireless will make it the largest U.S. carrier.

The New York-based telecommunications company reported net income of $1.88 billion, or 66 cents a share, compared with $1.68 billion, or 58 cents a share, a year earlier. Revenue increased 3.7% to $24.12 billion.

The results show that, like its rival AT&T Inc., which reported last week, Verizon is being affected by the weaker economy, at least in its land-line business. Verizon executives, however, said the company's results showed it is able to withstand the economic slowdown.

"Although we may see some softening in some of our volumes, we do not expect any significant economic impact on our financial results in the second half of the year," said Denny Strigl, Verizon's president.

Verizon reported that the number of land lines it operates fell 8.5% to 38.3 million in the second quarter, compared with a 7.8% drop-off a year earlier. The weaker economy appears to be accelerating the number of people disconnecting land-line phone services, either in favor of cellphone services or cheaper Internet-phone services.

Analysts also focused on Verizon's broadband business, which, like AT&T's broadband unit, showed weakness. Verizon's high-speed-Internet subscribers rose 12% to 8.3 million, a growth rate less than the 26% increase in the year-earlier period.

The slowdowns reported by both AT&T and Verizon raised questions about whether the high-speed-Internet market is maturing or whether phone companies' DSL services are losing ground to cable companies' faster offerings. Comcast Corp., the biggest U.S. cable operator by subscribers, reports earnings Wednesday, and its results are likely to be closely scrutinized for clues about the answer.

Verizon's results suggest the slowdown may be limited to phone companies. It lost 133,000 DSL customers but gained 187,000 customers for FiOS, a faster Internet offering now being rolled out. About a quarter of FiOS's gains came from customers dropping the company's DSL service, according to Verizon Chief Financial Officer Doreen Toben.

Verizon said its wireless revenue rose 12% to $12.12 billion while wireless data revenue was up 45%.

Write to Andrew LaVallee at andrew.lavallee@wsj.com7 and Roger Cheng at roger.cheng@dowjones.com8

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