August 2, 2006 Customer Loss to Internet Continues to Hurt Phone Carriers By KEN BELSON NY Times
http://www.nytimes.com/2006/08/02/technology/02verizon.html?_r=1&oref=slogin&pagewanted=print Verizon and Qwest reported yesterday that the defection of their residential phone customers to cheaper Internet-based services picked up speed in the second quarter. But they said that strong sales of wireless and broadband services, as well as cost-cutting efforts, offset some of the losses. Verizon Communications, the nation's No. 2 local phone carrier behind AT&T, earned $1.6 billion, or 55 cents a share, in the second quarter, a decline of 24 percent compared with $2.1 billion, or 75 cents a share, earned in the 2005 period. Revenue increased 26 percent, to $22.7 billion, partly because of revenue from MCI, which Verizon absorbed in January. If MCI's revenue had been included in last year's quarterly figures, the increase would have been 2.3 percent. Qwest Communications International, the fourth-largest carrier, earned $117 million, or 6 cents a quarter, in contrast to a $164 million loss a year earlier. It was the company's second consecutive profit. Revenue was unchanged at $3.47 billion. Qwest's continued recovery helped drive up its stock 61 cents yesterday, or 7.8 percent, to $8.40. Verizon's stock sagged 55 cents, or 1.6 percent, to $33.27. Verizon lost just over a million local lines in the quarter, down 7.4 percent, which was more than analysts had expected. Many of the residential customers that Verizon inherited from MCI have defected; the company said Comcast's expansion into the phone business was also responsible. Qwest said it lost 263,000 phone lines, a 5.2 percent decline. Some Verizon and Qwest customers are moving to Vonage, the nation's largest Internet phone provider. Yesterday, Vonage said its revenue more than doubled, to $143 million, in the second quarter. Vonage added 256,000 subscribers in the period and now has 1.85 million customers, more than twice what it had a year before. The company indicated it expects to have as many as 2.45 million subscribers by the end of 2006. According to Todd Rosenbluth, a telecommunications analyst at Standard & Poor's, "The threat of competition from cable companies and Internet phone companies was there a year ago, but the reality of it is something we're seeing in 2006." He added that the phone companies were fighting back by discounting and bundling their services. Vonage, though, said it lost $74 million in the quarter, down from $85 million in the preceding three months, as it continued to spend heavily on advertising. Its shares fell 39 cents, or 5.5 percent, to $6.70, and have lost more than 60 percent of their value since they were offered late in May. As the phone companies lose traditional customers, Verizon in particular is relying more on its mobile phone business, Verizon Wireless, which it owns with the Vodafone Group. Verizon Wireless added 1.82 million subscribers in the quarter, a 15.8 percent increase, and has 54.8 million customers over all, second to Cingular Wireless. The turnover rate fell to a record low 1.13 percent. Revenue at Verizon Wireless rose 18 percent, to $9.3 billion, in the second quarter. For the first time, its revenue from data services surpassed $1 billion in a quarter. To increase the share of profits from its faster-growing wireless business, Verizon has been eager to buy the 45 percent of Verizon Wireless held by Vodafone. But Verizon's chief executive, Ivan Seidenberg, said yesterday that he met last week with his counterpart at Vodafone, Arun Sarin, who said he was "extremely pleased" with its Verizon Wireless stake. "There really isn't much reason for people to speculate" that Vodafone will sell its stake "over the next several years," said Mr. Seidenberg, reiterating, though, that he was still interested in Vodafone's holding. Investors saw a silver lining in Mr. Seidenberg's comments. They said they feared that Verizon would overpay for the Vodafone stake at a time when growth in the wireless industry was starting to show signs of a slowdown. "We could see a couple more quarters of good growth and then we reach equilibrium or it gets bloody," Robert Rock, a telecommunications analyst with John Hancock Mutual Funds, said. Verizon continues to spend billions of dollars to build a fiber optic network capable of providing phone, broadband and television services. The company said 375,000 customers with access to the fiber network had signed up for broadband services, including 111,000 last quarter. It said that on average, 12 percent of customers capable of getting its fiber-based services were signing up. In all, the expenses related to the building of the fiber network reduced earnings by 7 cents in the quarter, a penny more than in the first quarter. But Verizon said it was cutting construction costs by renegotiating rates with contractors and taking advantage of lower equipment prices. As a result, it has reduced the cost of connecting homes to the fiber network, now as much as $2,000, by about $100 each. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
