Verizon Rolls With Video

Verizon's (VZ Quote) strong TV and wireless gains still can't outpace erosion of its core phone business.

The New York phone giant posted in-line first-quarter financial results and impressive growth in its red-hot Verizon Wireless venture with Vodafone (VOD Quote). And the company's costly fiber optic expansion effort is getting less expensive, while new TV subscribers are coming on board faster than expected.

But the main phone business saw its fourth-straight quarter of increased customer defections. In the first quarter, Verizon lost 925,000 lines from year-end levels -- meaning it has lost 7.9% of the lines it had at March 31, 2006. The cancellation rate is up from 7.6% in the fourth quarter and 6.9% a year ago.

Verizon says about 100,000 of those latest-quarter lost customers were enrolled with the MCI consumer phone service unit, which has been winding down for the past three years.

The pace of customer losses confirms analysts' assumptions about the increasing competitive pressure coming from the triple play bundle services offered by cable companies such as Comcast (CMCSA Quote), Cablevision (CVC Quote) and Time Warner Cable (TWC Quote).

A bit of happier news came on the video front. While Verizon is losing ever more residential phone users, it has been gaining some customers with its own offering of TV, fast Internet and phone service. In Verizon's case, observers say the TV customers might be coming from the satellite operators EchoStar (DISH Quote) and DirecTV (DTV Quote).

Verizon added 144,000 new TV customers in the first quarter, well ahead of the 100,000 or so analysts had expected.

Verizon COO Denny Strigl told analysts on a conference call Monday that looking ahead he saw FiOS growth as "strong and sustainable." But the pace of subscriber gains isn't likely to surge dramatically. Strigl says the company is trying to balance costs and growth, and the current pace of installing about 2,000 customers a day is about the maximum, unless the company was to spend a lot more on staff and equipment.

The executives were asked if the patent litigation victory against Vonage (VG Quote) would allow Verizon to go after other competitors using voice-over-Internet-protocol technology, such as cable companies and smaller telcos. Vonage is appealing the decision and was granted a stay so it could continue to add new customers.

CEO Ivan Seidenberg said Verizon always needs to protect its intellectual property across the board. But Seidenberg said it was too early to discuss a possible legal battle with the cable companies. "The best thing is to work through the appeal process," Seidenberg said. "Then we will be in a good position to decide the next step."

Verizon shares rose 23 cents $38.12 in late-morning trading Monday.