Verizon counts on wireless for profits

Verizon Communications' wireless business continues to boost the company's profits as its landline business sputters, according to second-quarter earnings reports.

On Monday, Verizon reported a 12 percent increase in second quarter net income. The company reported that profits jumped to $1.88 billion in the second quarter from $1.68 billion during the same quarter a year ago. This increase came as the company only slightly grew its revenue, which was $24.12 billion for the quarter up from $23.27 billion a year ago.

Wireless once again proved to be the big growth engine for Verizon, which jointly owns Verizon Wireless with European phone company Vodafone.

During the quarter, Verizon added 1.5 million new subscribers bringing its total to 68.7 million. This is an important achievement given the fact that more than 80 percent of all Americans already own a cell phone. AT&T, Verizon's chief rival, added 1.3 million wireless subscribers during the second quarter.

Currently, Verizon lags behind AT&T by only 4.2 million subscribers. But that will soon change after Verizon completes the $28.1 billion acquisition of Alltel, which has 13 million customers. Once that merger is complete sometime later this year, Verizon will be the largest wireless operator in terms of subscribers in the U.S.

But as Verizon's wireless business continued to grow unabated, the company's landline business was much less impressive. Revenue for all of wireline fell about 1.8 percent to $12.1 billion. As expected the company saw declines in its residential phone lines. During the quarter, Verizon lost 920,000 access phone lines, which was about an 11.4 percent drop from a year ago. But this drop in access lines has largely been expected as residential customers cancel second phone lines and use alternative services such as wireless or voice over IP services.

While it was expected that Verizon's traditional phone business would continue to fall, it was somewhat surprising that the company also saw some weakness in its newer broadband services. For one, the company missed some analyst targets for signing up new Fios TV customers. Fios TV is Verizon's answer to cable TV, and it's delivered over the company's all-fiber network.

Verizon reported it had added 176,000 new customers for the service. But this fell short of some expectations. For example, Dow Jones News reported that Bank of America had projected Verizon would add 260,000 new Fios TV customers.

This news comes just as Verizon launches Fios TV in New York City. The company sees densely populated urban areas like New York City as a big opportunity as it expands the Fios service. And adding the video to its package should help the company compete more directly with cable operators, such as Time Warner Cable and Cablevision.

But it wasn't just Fios TV that disappointed. Verizon also lost a considerable number of DSL subscribers, about 133,000 to be exact. The second quarter is typically weaker in broadband because college kids go home for the summer and cut off their broadband service. But it looks like the company is hitting a slump in DSL subscribers as it pushes its Fios service. Meanwhile, Fios Internet took up some of the slack adding about 187,000 new customers.