Verizon Communications added 101,000 net DSL customers in Q2, compared to 160,000 net additions in Q1. On the financial front, Verizon reported operating revenues of $16.8 billion for Q2 2003, compared to $16.3 billion in the preceding quarter. The company described the quarter as very solid, especially for strong growth in wireless and long distance services. Key metrics include:
- Verizon Wireless: 1.2 million net retail customer additions, up 10 percent from last year’s quarter (1.3 million total net customer additions); record-low churn; strong margins; service revenue up 14.7 percent from last year’s quarter; customer total at 34.6 million. Text messaging grew to more than 300 million billed text messages a month, and 1.4 billion in the first half of this year. Usage on the company’s Express Network has significantly increased over the preceding quarter. Wireless operations have generated $1.1 billion in free cash flow this year.
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Long Distance: there were 1.4 million net additional long-distance lines in the quarter. Total long-distance lines now number 14.6 million, a 36.1% year-over-year increase.
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DSL: added 101,000 net DSL subscribers, giving it a total of 1.9 million DSL lines. About 67% of Verizon’s 56.8 million access lines are qualified to receive DSL service. During the quarter, Verizon eliminated outbound telemarketing promotions for DSL. This was done to address high churn levels and improve profitability. In mid-May, Verizon cut its DSL prices and launched a promotion with MSN8. Since then, Verizon said it has regained momentum in adding DSL customers. It now expects DSL growth rates to be much higher for the rest of the year.
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Bundling: nearly 24% of Verizon consumers now subscribe to a package of Verizon services, including either local service plus enhanced calling features or local service plus broadband, long distance or wireless services.
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Data Services: generated $1.8 billion in Q2, down slightly from the year-earlier period, with increased demand for high-speed services such as ATM, Frame Relay, SONET and DSL, offset by a lessened demand for low-speed services.
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Access Line Loss: Verizon was serving 56.8 million access lines at the end of Q2, down 3.7% compared to the same period last year. The loss includes access line loss due to WorldCom disconnects — without these WorldCom losses the decline would be 3.4% Business line loss was higher than consumer line loss. Factors affecting this loss are technology substitution and UNE-P competitors.
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UNE-P lines: Verizon lost 518,000 lines to UNE-P competitors in Q2, compared to a 386,000 line loss in Q1 2003. Total resale and UNE-P lines now number 4,999,000, up by 36% from 3,678,00 at this time last year. The UNE-P increase was attributed to long distance company competitors (AT&T) in a handful of states. Verizon warned that unless regulators changed policies or pricing, UNE-P line losses were likely to continue in those states. The company cited New Jersey (AT&T’s home state) as the state with UNE-P rates furthest out of balance.
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The MCI saga: Verizon has been pursuing two lines regarding the WorldCom bankruptcy. First, Verizon reached a settlement with MCI to be reimbursed for some of the money it is owed for access charges. Second, Verizon believes that WorldCom must be punished and not allowed “to enjoy the fruits of its fraud.”
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Video Content: Regarding the recent SBC + EchoStar and Qwest + DirecTV and EchoStar deals, Verizon sees this trend as positive for the ILECs overall. Verizon does not plan to do such deal but might consider a video partner over the next 6 to 9 months. Long term, Verizon will look to a video solution that leverages its network, possibly an FTTP solution.
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Labor negotiations: Currently underway. Contracts are expiring in the next few days.
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FCC Triennial Review: Verizon eagerly awaits the final release of the FCC’s triennial review so that it can factor the details into its business activities.
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Diluted earnings per share (EPS): $0.12 in fully diluted EPS, compared with a loss of $0.78 per share in Q2 2002
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Net debt at the end of Q2 was $48.1 billion, down by $3.7 billion since year-end 2002.
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CAPEX to revenue ration is now 15.2%
Verizon reiterated 2003 guidance of $2.70 to $2.80 in adjusted EPS, 0-2% comparable revenue growth, and $12.5 billion to $13.5 billion in capital expenditures. Also, Verizon is now targeting a further $3 billion to $4 billion reduction in net debt — from a range of $49 billion to $51 billion, to $46 billion to $47 billion — based on continued strong operational performance, and the use of proceeds from non-strategic asset sales.
http://www.verizon.com