AT&T, Verizon Brace for More Wireline Losses

Telecom giants AT&T (T Quote) and Verizon (VZ Quote) are set to report second-quarter earnings results in the next week, but eroding wireline margins amid increased competition may overshadow growth in wireless divisions.

With AT&T's second-quarter earnings scheduled for Wednesday and Verizon for next Monday, the struggles of the wireline businesses, which have come under pressure as customers have disconnected home phone lines in favor of wireless connections, should be on full display.

In its first-quarter report, AT&T said total switched access lines fell 7.7% from the year-ago period, worse than many analysts anticipated. In its wireline segment, operating revenue has declined over the previous three quarters, while operating expenses have continued to climb. Adjusted operating margin for the wireline segment slid to 18.5% last quarter from 20.1% in the same quarter a year earlier.

An increase in U-verse video connections was a positive for AT&T in the first quarter, but that gain was offset by a sharp decline in retail consumer primary and additional access lines. Also, retail business access line connections continued to drop, falling 3% over the previous year. Many observers expect the same to show up in the company's second-quarter earnings release.

Verizon's core business also suffered in the first quarter as wireline revenue fell 1.4% from a year ago. Total switched access lines fell more than 8% in the first quarter from a year ago, with a large amount of that pullback coming from the residential segment. Verizon's operating income margin fell to 8.8% in the first quarter from 9.1% in the same period a year earlier.