Verizon is still on a roll

Verizon Communications saw big first quarter gains thanks in large part to demand for wireless and its Fios fiber service.

Verizon Communications' hot streak continued during the first quarter of 2008.

The company said Monday that first quarter profits jumped about 10 percent to $1.64 billion, fueled by demand for its mobile phone service and fiber-to-the-home service called Fios.

cell user

Revenues grew about 5.5 percent to $23.8 billion, the company said. About $11.7 billion of that revenue came from its wireless business, an increase of about 13.2 percent from the first quarter of 2007.

There's no question that Verizon Wireless, which is jointly owned by Vodafone, has a good reputation as a wireless provider. Its network is considered to be highly reliable, and the company has always done well retaining customers.

And now Verizon is getting those customers to use more of its data services, such as picture messaging, text messaging and Internet surfing. In fact, it looks like mobile data is driving growth in the highly profitable wireless business with revenue from data services jumping 48.9 percent from the previous year generating about $2.3 billion in revenue.

Verizon reported that its customers sent or received more than 58 billion text messages and 1.1 billion picture/video messages during the quarter. And customers completed 34.6 million music and video downloads. On average, Verizon's wireless customers spent $11.94 a month on data services, an increase of about 33 percent from a year earlier.

Mobile data accounted for about 20 percent of all wireless sales for the quarter, but the company hopes it will eventually account for a bigger chunk of the revenue pie in the future. About 58 percent of Verizon's retail customers had broadband capable devices at the end of the first quarter, the company said.

Wireless operators, such as Verizon, are counting on consumers to use even more data in the future. That's the reason Verizon spent $9.3 billion on new wireless spectrum licenses in the Federal Communications Commission's recent 700MHz spectrum auction. The company has already said that it plans to use this spectrum to build its 4G wireless broadband network that will deliver even faster data speeds to its customers using a technology called LTE .

The company is also trying to spur innovation by opening its network to a faster certification process for new devices and applications. The hope is that streamlining the process will allow developers to get products and services that use the Verizon network on the market faster than before offering customers new and cool devices and applications first.

But wireless isn't the only shining light for Verizon. The company also saw big growth in its fiber-to-the-home service called Fios. This service, which includes high-speed broadband access, telephony and TV service, competes head-to-head with cable offerings. Verizon said it added 263,000 new TV customers in the first quarter bringing the total number of Fios TV customers to 1.2 million. In terms of broadband, the company said the majority of its new broadband customers were for Fios. The company added 262,000 Fios broadband connections during the quarter for a total of 1.8 million Fios broadband customers.

Verizon CFO Doreen Toben
Verizon CFO Doreen Toben Verizon Communications

As expected, Verizon continued to see declines in its traditional telephony business, which fell 2.5 percent during the quarter. The company cut about 6,500 workers in 2007 and more job cuts in the traditional telephony business are expected throughout the year, company CFO Doreen Toben said.

Verizon's bets on wireless and fiber seem to be paying off. But as the overall U.S. economy softens it will be interesting to see if the company's strong growth will continue. My gut feeling is that Verizon is in good shape. Cell phone, TV, and broadband service are three things that most people won't want to live without even if they are crunched for cash. But the big question is how much more will people be willing to spend on the extras, such as mobile music downloads, mobile TV service or the highest level TV and broadband packages? That's the big question that will likely determine how much growth Verizon will experience in the future.
 

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