Verizon Communications Inc posted a lower quarterly profit and said it would cut 8,000 jobs in its wireline business, as weakness in wholesale and corporate segments overshadowed wireless growth.
Verizon, whose shares fell 2.6 percent on Monday morning, said it would accelerate cost cuts in its landline business, with new layoffs amounting to 3.4 percent of its workforce of 235,000 employees. They come on top of 8,000 job cuts in the last year.
Clearly the broader economic issues are affecting the business, Chief Financial Officer John Killian told analysts on a conference call. In particular he cited delays to big telecom projects at corporate clients as well as job cuts, which reduce business telephone use.
We're hoping as we go further into the year we'll see some recovery in employment and in the economy, Killian told Reuters in a telephone interview.
In addition to the upcoming cutbacks Verizon also plans to significantly reduce the wireline cost structure over the next 12 to 18 months, Killian told analysts.
Verizon's second quarter results were largely in line with Wall Street expectations. While revenue rose 0.2 percent in its mass-market segment, including home phones and small businesses, it was offset by declines in wholesale and enterprise.
NEW IPHONE HURT
Operating revenue rose 11 percent to $26.86 billion in the second quarter, and compared with the average analyst estimate of $26.85 billion, according to Reuters Estimates.
Verizon Wireless, the biggest U.S. mobile service, said it saw competition pick up in June after the latest iPhone from Apple Inc went on sale at its biggest rival AT&T Inc , which has exclusive U.S. rights to iPhone.
But executives on the call said Verizon would improve its own phone line up with Palm Inc's high-profile Pre early 2010 and new upcoming phones from Motorola Inc .
Strong mobile customer growth at AT&T and Verizon in the second quarter likely means customers defected from rivals such as Sprint Nextel Corp and T-Mobile USA, owned by Deutsche Telekom , analysts said.
It's reassuring that both Verizon and AT&T had good postpaid subscriber growth but it's somewhat worrisome for Sprint and possibly T-Mobile USA, who have yet to report, said Hudson Square Research analyst Todd Rethemeier. Sprint, the No. 3 U.S. mobile service is scheduled to report results July 29.
On Friday, Verizon Wireless said it added 1.1 million mobile subscribers in the quarter and AT&T Inc reported 1.4 million net new customers last week.
Verizon's second-quarter profit fell to $3.16 billion, or 52 cents per share, from $3.4 billion, or 66 cents a share, in the same quarter a year earlier.
Excluding items such as merger integration and pension charges, profit was 63 cents per share, in line with analysts' average estimates, according to Reuters Estimates.
Verizon, which owns Verizon Wireless with Vodafone Group Plc , said that before merger costs and other items, wireless margins on earnings before interest tax, depreciation and amortization rose 0.7 percentage points to 46.3 percent. AT&T margins were hurt by hefty costs from iPhone subsidies.
Verizon and AT&T both focus on postpaid customers who commit to pay set monthly bills for two years even if they talk less. But due to the weak economy interest has picked up in prepaid, where customers pay in advance and do not commit to contracts.
This led Verizon to recently forge an deal with Tracfone, the U.S. wireless arm of America Movil , under which Tracfone rents space on Verizon's network to offer unlimited calls to customers who pay in advance at cut price rates.
The service also uses Verizon's brand in some markets, causing concern among some analysts that the deal could potentially hurt Verizon's postpaid business.
Verizon said the branding pact was an trial, which it could end after six months and that its focus is still on postpaid.
That does not mean, however, that we will ignore prepaid or our reseller partners, Verizon Chief Operating Officer Denny Strigl told analysts, adding that the company would always look for opportunities to capture share on a profitable basis, but we would not do that by cannibalizing our own postpaid base.
Verizon shares were down 85 cents at $30.65 on the New York Stock Exchange in late morning trading.
(Reporting by Sinead Carew; Editing by Derek Caney and Ted Kerr)