Verizon (VZ) emphasized its gains in growth markets, and investors obligingly stopped gawking at the core declines.The nation's largest telco reported solid third-quarter earnings and managed to keep its wireless winning streak alive with another record-high number of net new subscribers. The continued wireless momentum and big broadband gains successfully offset a sharp drop in total phone lines. For the quarter ended last month, Verizon Wireless -- co-owned by Verizon and Vodafone ( VOD) -- added 1.9 million net new users and kept its monthly defection rate, or churn, at 1.3%. And thanks to cheap digital subscriber line, or DSL, offerings, Verizon added 389,000 broadband customers. All the fuss over growth provided a nice distraction from the accelerated shrinkage of Verizon's core phone business. Total phone lines dropped 6.2% from a year ago, a somewhat alarming pickup in the pace of declines. Lines had dropped 5.5% in the prior quarter. Verizon executives on a conference call with analysts Thursday tried to put the line losses in perspective, stressing that observers should consider the bigger picture. The upshot: Verizon is in the midst of a huge transition. The phone giant is investing in bold new efforts to help offset the erosion of its core calling business. But Wall Street is familiar with that line and hasn't shown much patience for costly reinvention stories. Verizon shares hit a three-year low earlier this month on worries that the big Bell was spending its way into a massive hole. But the company's stock caught a little slack Thursday, as pessimists took a little breather. All in all, "it was a net modest positive," says a hedge fund manager with no positions. "The sky is not falling. The problems are evident but the company is operating through them."
Increased spending has helped Verizon chart this course, but the bulging costs have given analysts and investors reason for concern. After boosting projected spending by 15% to $15.3 billion this year, Verizon now predicts capital spending growth will cool off next year. The company expects spending to be about $15.4 billion to $15.7 billion. Observers eager to get a progress report on the company's biggest area of investment were left in the dark. The executives said Verizon's billion-dollar-plus fiber-to-the-home network expansion job called FiOS, was on track, but they declined to offer a progress report in terms of subscribers. One analyst estimates that it is a respectable "few hundred thousand homes." The company did say that the costs of the fiber plan will create about 4 cents a share of earnings dilution in the current quarter, which is equal to the dilution in the prior period. Asked by analysts about the pending merger with MCI, CEO Ivan Seidenberg said he expected the remaining state approvals to be completed by mid-December, and that the final blessing from federal regulators could come as late as January. Verizon shares rose 42 cents to $31.01 in Thursday trading.