Net income climbed 3.9 percent to $1.07 billion, or 37 cents a share, from $1.03 billion, or 35 cents, a year ago, the New York-based company said today in a statement. Revenue rose 5.5 percent to $23.8 billion, less than the $24 billion average estimate of analysts in a Bloomberg survey.
Chief Executive Officer Ivan Seidenberg's plan to spend $23 billion over seven years to offer TV service and higher Internet speeds hasn't yet stemmed customer losses to cable companies. Investors are worried that an economic slowdown could cause more phone-line losses for Verizon and larger rival AT&T Inc., said Jeff Brimhall of National City Private Client Group.
``They both face a little bit of a challenge because they obviously have significant exposure to the consumer,'' the Cleveland-based analyst said in an interview. His firm manages $34 billion, including Verizon and AT&T shares. ``Line loss to wireless and to cable is a concern going forward, but the macroeconomic situation just adds uncertainty.''
Profit, excluding items such as severance pay for fired workers, was 62 cents a share, meeting the average estimate of 21 analysts in the Bloomberg survey. The wireless unit's operating margin, the percentage of sales remaining after deducting the costs of providing service, expanded to 26.2 percent from 25 percent a year ago.
Line Losses
Verizon rose 35 cents to $38.11 at 4 p.m. in New York Stock Exchange composite trading. The stock is little changed in the past 12 months.
Verizon lost 875,000 phone lines in the quarter, including 476,000 primary home-phone lines, as customers switched to cable voice plans or began using wireless service exclusively. Some of those mobile users are Verizon Wireless customers. Total phone lines dropped 8.1 percent from a year ago to 41.4 million, accelerating from an 8 percent drop the previous quarter.
AT&T also reported fourth-quarter revenue that fell short of analysts' estimates. While San Antonio-based AT&T blamed the results on shutting off service to nonpaying customers, Verizon pointed to competition from cable companies such as Comcast Corp.
U.S. retail sales fell last month, unemployment climbed, and factory production has slowed. The Federal Reserve cut the benchmark lending rate Jan. 22 in its first emergency reduction since 2001. President George W. Bush is working with lawmakers to pass an economic stimulus package to avert a recession.
Growth Concerns
After a 17 percent gain in 2007, Verizon shares have fallen 13 percent this year amid investor concerns about economic growth. AT&T said a slowing economy cost it about 100,000 of the 656,000 primary home-phone customers it lost last quarter. Verizon hasn't detected a similar trend, company president Denny Strigl said.
``Whether they face a challenge or not, investors are concerned by the fact that they are going to,'' Brimhall said.
Verizon continued to trim jobs. The company recorded a charge of 16 cents a share in the fourth quarter for severance pay to fire 9,000 phone-line workers from last quarter through the end of this year. Verizon has about 235,000 employees.
``It's not related to any kind of economic trend,'' Chief Financial Officer Doreen Toben said in an interview. ``When lines go down, when you have less lines, you have less need for force.''
Selling Businesses
The company is awaiting regulatory approval for a $2.72 billion deal to hand over about 1.6 million phone lines in the northeastern U.S. to FairPoint Communications Inc. Verizon spun off a directories unit and sold assets in the Dominican Republic, incurring expenses of 22 cents a share in the quarter.
Verizon added 226,000 TV subscribers to its fiber-optic network, fewer than the 234,000 projected by UBS AG analyst John Hodulik in New York. The company also recruited 245,000 fiber Internet customers, missing Hodulik's 284,000 estimate.
The fiber-optic network, called FiOS, is now available in parts of 17 states, the company said today. Verizon plans to make it available to 18 million homes by the end of 2010, about twice last year's total. Customers are less likely to cut phone lines when they order TV and fiber-based Internet services, Toben said.
``It sounds like, as video continues to roll out, the retention should improve,'' said Jonathan Atkin, an analyst at RBC Capital Markets in San Francisco. He said he expects the shares to perform in line with the broader market.
Verizon's capital expenses in 2008 should fall below the $17.5 billion it spent last year, Toben said.
Wireless Customers
Verizon Wireless, jointly owned by Verizon and Vodafone Group Plc, added 2 million customers, including 1.6 million on long-term contracts. Subscribers who sign contracts are more profitable because they're more likely to stay with the company over time than those who pre-pay for service.
Verizon Wireless took subscribers from smaller rival Sprint Nextel Corp., which lost 683,000 contract customers last quarter. AT&T, owner of the biggest U.S. mobile-phone service, added 2.7 million users in the quarter, including 1.2 million on contracts.
Wireless customer turnover, or churn, narrowed to 1.2 percent from 1.3 percent in the previous quarter. The company has kept users by spending to maintain the quality of its network, said Todd Rosenbluth, an equity analyst at Standard & Poor's in New York.
``It was a strong quarter, driven by wireless,'' Rosenbluth said. He had estimated Verizon Wireless would add 1.5 million subscribers. ``They continue to be the most efficient operator out there.''
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