Sluggish Economy Not Hurting Verizon

Verizon Wireless posted impressive second quarter earnings this morning, beating analysts’ predictions in posting revenue of $1.88 billion, a 58 cents a share jump from last year’s second quarter earnings of $1.68 billion.

Revenue for the second quarter was $24.12 billion, up from $23.27 billion in the first quarter and a 3.7 percent increase compared with second quarter 2007.

The wireless industry remains a contentious horse race despite market softness and a longer enterprise sales decision-making cycle.

Sluggish economics aren’t prompting businesses or individual smartphone users to switch off services, pull back on data services or put off handset upgrades, as leading wireless industry players predict continued strong growth throughout the rest of the year.

Verizon Wireless leaders attributed strong growth in wireless services and demand for data services as the primary stimulators. It even credited the arrival of Apple’s second-generation iPhone for spurring growth.

“As we saw with the initial introduction, the iPhone has actually stimulated smartphone sales,” Denny Strigl, Verizon’s president and COO, said during the call, noting that over 30 percent of the carrier’s device sales are now smartphone purchases.

The No. 2 U.S. phone service provider, which is owned by Verizon Communications (NYSE: VZ) and Vodafone Group (NYSE: VOD), added 1.5 million subscribers in the second quarter bringing its total subscriber base to 68.7 million. Last week AT&T reported adding more than a million subscribers.

Verizon Wireless’ current churn rate of 1.12, however, was a bit higher than AT&T’s (NYSE: T) 1.1 percent posted last week, and its spike of 45.3 percent in data revenues was also lower than the leading carrier’s 52.0 percent jump in data revenues.

While noting loss in landline business, Verizon Wireless expects its new push-to-talk service, which launched today, as well as new devices, to spur business forward.

“We’ve seen a little sluggish decision making,” noted Strigl, describing the business enterprise as a “competitive” market place. Enterprise revenues were up 1.7 percent, and the carrier said the figure will be higher by fourth quarter as “significant” contracts would be delivered.

“We’re well positioned to compete effectively,” Strigl said.

The carrier’s total debt was $43.1 billion for the second quarter, compared with $35.8 billion at the end of the first quarter 2008 due largely in part to the $8.5 billion spent for spectrum licenses in the 700MHz spectrum auction
and the impending purchase of Alltel.

In March Verizon Wireless came out on top in the Federal Communications Commission’s wireless spectrum auction, spending a total of $9.63 billion to acquire enough regional licenses in the spectrum’s hotly contested C Block section to build out a “nationwide footprint,” according to analysts.

In June it announced it was acquiring rural carrier Alltel, which serves more than 13 million customers in markets in 34 states, including 57 rural markets that Verizon Wireless currently doesn’t serve. The vendors hope to have the $28.1 billion deal signed and delivered by year’s end following regulatory review by the DOJ, which oversees anti-trust regulations, and the FCC.

If approved it would make Verizon Wireless the largest U.S. carrier as it would add Alltel’s 13.2 million subscribers to its customer list. Verizon Wireless said the Alltel purchase is “well under way.”

“We are committed to top-line performance and bottom-line improvement and expect double digit earnings growth for the year,” Strigl said.

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