The new question about Verizon ( VZ) is whether its pacesetting wireless unit can maintain its blistering expansion. The nation's largest phone company has long been troubled by line losses in its core local phone business. On Tuesday, Verizon posted another weak quarter on that score. But as has been the case lately, those numbers were offset by strong results at the fast-growing Verizon Wireless operation. With the latest mixed numbers, Verizon joins Baby Bell peers SBC ( SBC) and BellSouth ( BLS) in wringing more revenue out of offerings such as fast Internet access and cell-phone service. In fact, Verizon executives on Tuesday trumpeted the fact that sales are now split between those so-called growth businesses and the eroding basic local phone operation. That sounds like good news. But Tuesday's land-line numbers were even weaker than expected. And now there's doubt in some quarters about whether even Verizon Wireless, the nation's No. 1 cell-phone service provider, can keep up with its recent growth kick. Verizon shares slipped 53 cents to $37.21 in midday trading.
The New York phone giant's first-quarter report showed the balancing act. Wireless subscriber growth and customer loyalty exceeded many estimates, as Verizon Wireless added 1.4 million net new users. Better yet, the company reported a churn rate, reflecting monthly customer defections, that improved to an industry-leading 1.6% from 1.7% in the December quarter. But Verizon's core wire-line revenue dipped lower than hoped, as the popularity of cell-phone service continues to eat away at local calling operations everywhere. Meanwhile, the economy's strong start to 2004 failed to lift the larger Verizon ship. "They are doing the best they can in a real difficult industry," says Craig Nedbalski, a money manager with Victory Capital Management. "But there's some fundamental weakness in their consumer and normal old wire-line business. They have not participated in the economic recovery."
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.