Verizon sales rise led by wireless growth

By Ritsuko Ando

NEW YORK (Reuters) - Verizon Communications Inc (VZ.N: Quote, Profile, Research) said on Monday its quarterly revenue rose due to strong wireless subscriber growth, although profit fell after merger-related costs and other items.

The second-largest U.S. phone company after AT&T Inc. (T.N: Quote, Profile, Research) also said it would increase its 2007 share buyback target by 25 percent to $2.5 billion.

"It's a story of tremendous strength in wireless and continued deterioration in wireline," said Sanford C. Bernstein analyst Craig Moffett.

Verizon's third-quarter net income was $1.27 billion, or 44 cents per share, compared with $1.92 billion, or 66 cents a share, a year earlier.

Excluding items such as merger integration costs, access line spinoff-related charges and international taxes, profit was 63 cents per share, a cent above the analysts' average forecast of 62 cents, according to Reuters Estimates.

Operating revenue rose 6 percent to $23.77 billion, slightly above the $23.6 billion forecast by Wall Street.

Verizon shares rose 0.8 percent to $45.98 in early trade on the New York Stock Exchange.

"It was a very solid quarter, not spectacular," said analyst Chris King of Stifel Nicolaus, who was not impressed with the performance of Verizon's DSL service, which offers high speed Internet over traditional phone lines.

"If there was one weak spot in the numbers that's on the DSL side," but King added that was "a relatively low profit margin business for them so it's something I'm not overly concerned with. FiOS and wireless are far more important."

Verizon Communications has been expanding its FiOS high-speed fiber optic service, which allows the phone company to offer video. The service lets Verizon compete against cable operators' all-in-one packages of video, phone and Internet.

Verizon added 202,000 new FiOS TV subscribers in the third quarter, taking the total to 717,000. It added 229,000 FiOS Internet subscribers.

Verizon Wireless, which Verizon Communications owns with Vodafone (VOD.L: Quote, Profile, Research), added 1.8 million net retail customers in the quarter, taking total subscribers to 63.7 million.

FIOS ON TRACK

Verizon Chief Operating Officer Denny Strigl told analysts on a conference call that Verizon was on track to post a 2008 profit for FiOS before interest, tax, depreciation and amortization.

The cost of deploying FiOS hurt quarterly earnings by 9 cents per share, Verizon said. It said in September it expected to invest $18 billion from 2004 through 2010 to deploy the FiOS network.

Most analysts have said the investment, while costly, was necessary to offset a decline in home phone subscribers. But critics have said it was a risky bet, preferring AT&T's more cost-conscious approach that uses less fiber.

Including DSL, which offers high speed Internet over traditional phone lines, and FiOS, Verizon said it added a net 285,000 new broadband connections.

Moffett was unimpressed with the broadband growth. "It raises the question whether the lion's share of gains from FiOS are simply cannibalization of DSL," he said.

King also noted that AT&T's exclusive agreement to sell the iPhone from Apple Inc (AAPL.O: Quote, Profile, Research) did not appear to have hurt Verizon Wireless customer additions in the quarter.

"If I was AT&T I'd be a little disappointed I wasn't able to take more market share from Verizon Wireless," King said.

Verizon repurchased nearly $800 million of its shares in the quarter, and was increasing its 2007 buyback target by $500 million to $2.5 billion.

(Additional reporting by Sinead Carew)