May 2, 2006 9:47 AM PDT

Verizon revenue grows on wireless

Wireless sales boosted Verizon Communications' revenue in the first quarter of 2006, as the company looked for ways to compete more aggressively with cable operators on the wireline side of the business.

Verizon reported first-quarter revenue of $22.74 billion, up from $18.18 billion in the same period the previous year. But net earnings were down to $1.63 billion, or 56 cents a share, compared with $1.76 billion, or 63 cents a share, in the previous year.

Verizon Chief Financial Officer Doreen Toben attributed the earnings decline to costs associated with Verizon's purchase of long-distance carrier MCI, which was completed in January. Toben said profits should improve later in the year as a result of savings from the MCI deal.

Much of Verizon's revenue growth came from Verizon Wireless, which it jointly owns with European carrier Vodafone. Revenue on wireless grew 18.8 percent to $8.8 billion, which included about $872 million, or 11.5 percent, for data services such as text messaging and mobile Web surfing. The company also said its churn rate, or the rate at which customers drop one provider's service to switch to another, reached a record low of 1.18 percent.

Verizon has made no bones about its desire to buy Vodafone's 45 percent stake to gain full control of Verizon Wireless, but CEO Ivan Seidenberg said the ball is in "their court" now.

Verizon also indicated that it plans to compete more aggressively with cable operators as it continues to deploy its fiber-to-the-home network called Fios. On Monday, the company announced it would increase Fios broadband speeds to 10Mbps (megabits per second) and 20Mbps in three states--New York, New Jersey and Connecticut--at no additional charge for customers. Previously, Verizon sold download speeds of 5Mbps for $40 and 10Mbps for $50.

Traditionally, Verizon has offered the same services nationally, promoting the same speeds and pricing to customers throughout its region. Now the company is taking a different approach to compete against cable operators.

"We are responding and reorganizing more regionally," Toben said. "You will see more regional pricing from us as we compete in certain areas."

Verizon's shift in strategy comes as competitors, such as Comcast, see strong subscriber growth in higher-speed broadband services and offer a "triple play" bundle of services that includes voice, video and high-speed Internet access.

Up until this point, Verizon has dropped prices to compete against the cable operators, offering a 768Kbps (kilobits per second) service for $17.99 per month. But now with the Fios network passing some 3.6 million homes in 15 states, the company is getting more aggressive as it competes directly with cable operators on speed.

Cable operators have already begun to feel the heat. Comcast recently doubled the download speeds for its fastest broadband service to 16Mbps in four cities at no charge to customers. In November, Cablevision boosted speeds of its service to 15Mbps at no extra charge to existing customers.

Fios also allows Verizon to compete against cable operators by offering a bundle of TV, high-speed Net access and phone service. Fios TV is now available in seven states. The new bundle is selling well, and the company is on target to reach its goal of 30 percent penetration in five years, Toben said. Fios TV is also helping Verizon sell its phone and broadband service, with about 80 percent of its video subscribers also buying broadband and telephony service from Verizon. The company said about a third of its Fios customers are former Verizon DSL (digital subscriber line) customers.

"Bundles are great," Seidenberg said. "While we're still taking access line losses, we're taking some steps in establishing regional pricing, which will help us hold margins."

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Verizon Communications, cable company, broadband service, MCI Inc., Vodafone Group Plc.

 

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