Verizon's good and bad news

Dividend strong, but FIOS and Internet fiber are disappointing

By Jim J. Jubak Oct 26, 2009 4:06PM

Jim JubakThird-quarter earnings, announced before the opening on Monday, should be a reminder of why I added Verizon (VZ) to my Dividend Income portfolio rather than to any of my more growth-oriented portfolios on October 9th.


Making enough money to pay the stock's 6.6% dividend doesn't seem to be a problem; getting enough growth in the new businesses to compensate for the decline in the old businesses continues to be a challenge.


The company did manage to beat Wall Street's earnings estimates for the quarter by a penny a share. Revenue came in as expected at $27.3 billion, up 10.2% from the third quarter of 2008.


The total number of wireless customers grew to 89 million. That's a 26% increase. 


But Verizon still trailed archrival AT&T (T), which added 2 million customers in the quarter to Verizon's 1.3 million. The difference, of course, was AT&T's exclusive deal to sell Apple's (AAPL) iPhone.


But the real problem was the mixed picture on the profitable data and video services that are Verizon's future. Sales of data services rose 48%, but customer turnover climbed to 1.49% from 1.33% in the third quarter of 2008. 


Turnover, or “churn,” as it's called by wireless operators, is a real profit killer, since it costs so much to acquire a new customer to make up for those that have departed.


The numbers from Verizon's FIOS TV and Internet fiber network, however, were the biggest disappointment. The company added fewer customers this quarter -- 198,000 for its FIOS Internet and 191,000 for its FIOS TV product -- than last quarter and than analysts expected. For example, Verizon added 300,000 FIOS TV customers in the second quarter of 2009.


That's not good news, since the company is spending $23 billion this year and next to build out its high-speed TV and Internet fiber network.


At the time of this writing, Jim Jubak did not own or control shares of any company mentioned in this post.

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