AT&T, Verizon Brace for More Wireline Losses

"These ARPU gains have created a non-linear 'threshold' effect, where moderate access line losses like those in the Southeast can be offset by rising ARPUs, but steeper access line losses like those felt in the Northeast cannot," writes Moffett. "The emerging video businesses at Verizon and AT&T are helping ARPU, but may be worsening margin declines. Expanded video footprints will likely put further pressure on margins."

On the positive side, wireless results from both Verizon and AT&T should be strong in the second quarter, although analysts are turning more cautious with their outlooks for the balance of the year. While both companies have feasted on Sprint Nextel's (S Quote) subscriber base, the embattled carrier has lately shown signs of a turnaround.

"An improvement in Sprint could put more pressure on Verizon's net ad share, [and] increased wireless pricing competition could hurt margins," writes Larsen. "Sprint should improve its competitiveness in 2008, which combined with slower industry growth should significantly reduce subscriber growth at the other carriers, particularly AT&T and Verizon."

Additionally, with wireless penetration above 80% in the U.S., there is a limited pool of new subscribers for AT&T and Verizon to compete for. With AT&T unveiling a lower-priced Apple (AAPL Quote) iPhone 3G in the quarter, Verizon could be faced with slower wireless growth.

"While the first-generation iPhone had a limited effect on Verizon's net adds, the lower price point and potentially broader appeal of the 3G iPhone could be a larger competitive threat," Larsen adds.

The main focus of the earnings reports from Verizon and AT&T, though, will be that access line losses are showing no sign of relenting. "Neither the maturation of the cable VoIP threat nor the broad deployment of fiber is having a discernible impact on the rate at which the access line base is eroding," Moffett says.