October 26, 2009 / 11:47 AM / 10 years ago

UPDATE 5-Verizon mobile growth beats but FiOS TV disappoints

* Q3 adjusted EPS $0.60 vs Wall St view $0.59

* Adds 1.2 million mobile subscribers, more than expected

* FiOS TV subscriber gains lower than expected

* Sees ‘09 capex below/at low end of $7.4-$7.8 bln target

* Verizon shares fall slightly (Adds analyst comment, share price update)

By Sinead Carew

NEW YORK, Oct 26 (Reuters) - Verizon Communications Inc’s (VZ.N) third-quarter profit fell a less-than-expected 9 percent as wireless subscriber gains offset slower-than-anticipated growth in its FiOS television service.

While Verizon Wireless added a net 1.2 million mobile customers, beating the average estimate of 1 million from five analysts contacted by Reuters, it is still losing market share to AT&T Inc (T.N), the exclusive U.S. provider for Apple Inc’s (AAPL.O) iPhone.

Verizon “certainly did see some pressure from iPhone in the quarter but it’s tough to complain about 1.2 million net adds,” said Stifel Nicolaus analyst Chris King. AT&T added 2 million customers in the third quarter.

The company, which depends on mobile, broadband and TV for growth, also appeared to lose customers to cable rivals such as Time Warner Cable TWC.N and Comcast (CMCSA.O), analysts said, adding that the shortfall caused the results of network gear supplier Tellabs TLAB.O to miss estimates [ID:nN26127559].

Verizon reported 191,000 FiOS TV customer additions in the quarter, short of King’s forecast of 250,000.

“Certainly cable was a little more aggressive,” King said.

Verizon Chief Financial Officer John Killian told Reuters that a promotion to offer netbooks to new FiOS customers did not fuel as much growth as expected, but he said there was no indication of increased pressure from cable rivals.

“This is a very competitive marketplace,” he said, repeating a target for 1 million new FiOS users for 2009.

Verizon ended a netbook promotion with Hewlett-Packard (HPQ.N) in the middle of the quarter because customers were looking for cash rather than product promotions, a person familiar with the promotion said.

The company’s third-quarter profit fell to $2.89 billion, or 41 cents per share but before one-time items, earnings were 60 cents per share, compared with the average analyst estimate of 59 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 10.2 percent to $27.27 billion, ahead of the average analyst estimate of $27.17 billion, helped by the purchase earlier this year of rural mobile operator Alltel.

On a pro forma basis, as if Verizon had owned Alltel last year, revenue would have risen 0.6 percent.


Wireless brought in just under 58 percent of Verizon’s total revenue for the quarter. Verizon Communications owns 55 percent of Verizon Wireless, while Vodafone Group Plc (VOD.L) owns the rest.

Many analysts see Verizon Wireless as an obvious second U.S. partner for Apple once AT&T’s exclusive rights to sell the iPhone ends. Verizon Chief Executive Ivan Seidenberg said he would like to partner with Apple, but such a decision would be Apple’s to make.

AT&T’s and Verizon’s reports of better-than-expected mobile growth comes ahead the quarterly report of Sprint Nextel (S.N), which reports on Thursday Oct. 29, and of T-Mobile USA’s owner Deutsche Telekom (DTEGn.DE), which reports Nov 5.

“The question is was there enough left over for Sprint and T-Mobile USA. It may have come more at T-Mobile’s expense,” Piper Jaffray analyst Christopher Larsen said.

In the business segment, which has been hurt by corporate budget tightening and layoffs, Verizon surprised some investors with 2.5 percent sequential growth and the company expects more improvements as the economy recovers.

“I think our growth rate will improve in enterprise over the next several quarters,” Killian said, but stopped short of giving a specific target.

Killian said the company was expecting strong growth in wireless in the fourth quarter with new devices including a touch-screen BlackBerry from Research In Motion RIM.TO and two devices based on Google Inc’s (GOOG.O) Android system.

Verizon particularly talked up one of the Android devices, Droid, expected to come from Motorola Inc MOT.N.

The company told analysts on the call that its 2009 capital spending would likely come in lower than its forecast of $7.4 billion to $7.8 billion and would be at the low end of that range “at worst.”

Killian expects capital spending next year to be a smaller percentage of revenue than in 2009.

Shares were down 15 cents to $28.70 in afternoon trade. (Reporting by Sinead Carew; Editing by Derek Caney and Tiffany Wu)

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