Verizon Still Eyeing Wireless, Fuel of Company Profit Growth
Verizon remains interested in acquiring Vodafone’s stake in Verizon Wireless, CEO Ivan Seidenberg said in response to analysts’ questions on the proposed purchase during Verizon’s Q1 earning conference call. Executives said the carrier has almost completed the cultural and logistical integration of MCI, and is in a “fast growth” phase, which includes trying to reel in the 45% of wireless operations held by the European carrier.
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“Vodafone is fully aware” of Verizon’s intention, Seidenberg told analysts, and the “ball is more in their court” in regard to numbers negotiations and the speed they occur. The CEO called the advantage of complete ownership by Verizon obvious, and said the big question is the trade-off of long-term ownership for up-front cash. He believes wireless markets will “regionalize” more in the long run, another advantage to full ownership, he said. After many questions on the topic, Seidenberg said there are “probably a gazillion ways of looking at this,” reiterated Verizon wants to buy, and said no more.
Verizon was one of a number of major telcos to see revenue rise while profit fell Q1, partly because Q1 2005 was uniquely profitable across the sector, while Q1 2006 saw much higher customer-retention and expansion costs. Net earnings, excluding MCI, fell to $1.63 billion from $1.76 billion last year. Revenue was up 25%, spurred as it often has been in recent quarters by Verizon Wireless’s strong numbers. The mobile operation added 1.7 million new customers net, surpassing optimistic Wall Street estimates, in what CFO Doreen Tobin said was its 8th-consecutive quarter with at least 1.5 million net adds. She said the wireless carrier’s tiny 1.18% churn marked an industry record low; postpaid churn was 0.92%.
Verizon has no more “here’s what MCI was” in its business structure, Tobin said, especially in the enterprise division, which has integrated very well. With that phase mostly done, the company looks forward to June’s spectrum auctions, though the company is just beginning to figure out what it wants, with plenty of time to make strategy, Seidenberg said: “We have a whole month to organize our thinking.”
Analysts had positive views after the call. John Hodulik of UBS said he is pleased with the company’s margins, though wireless is outperforming wireline by far, he noted. UBS held its “Buy 1” rating with a target price of $39 a share. Analyst Jeff Kagan said the company is doing a good job sliding revenue from its slowly diminishing wireline stream over to wireless as it prepares to compete with cable. He noted high loss of traditional phone lines to VoIP providers, which could be a problem the next few years, he said.
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Meanwhile, Verizon said it raised standard speeds of its FiOS service in N.Y., N.J. and Conn. to compete with cable. The service will be available at 10 Mbps downstream and 2 Mbps upstream for the standard $34.95 package and 20 Mbps/5 Mbps for the $49.95 package. The region is a key area for Verizon’s FiOS, as it’s home base to Verizon and chief regional rival Cablevision.