Verizon profit edges up 2.8% but shares decline

Verizon Wireless dazzled investors in the third quarter, but not enough to distract them from worries about the wired side of Verizon Communications Inc., where losses of traditional phone customers accelerated, profit margins eroded and costs from a “bet the company” push into cable TV rose.

Verizon’s stock slid after Monday’s third-quarter report, which showed that the company’s net income rose 2.8% to $1.92 billion, or 66 cents a share.

Revenue grew nearly 26% to $23.25 billion, but a big chunk of that increase came from the addition of MCI and its consumer long-distance and corporate telecom businesses, which Verizon acquired during the first quarter.

Verizon Wireless accounted for $9.87 billion of the revenue, up 18.2% from the third quarter of 2005, as its customer base swelled by 1.9 million subscribers to 56.7 million.

The results edged or met most Wall Street forecasts, with the cellular business outperforming expectations on multiple fronts.

But in a conference call with management after the report, analyst questions focused more on Verizon’s deteriorating traditional phone business and its huge investment in replacing copper wires with fiber optic lines to deliver TV and speedier Internet access.

The ongoing loss of residential and business phone lines exceeded expectations, hurting profit margins from that operation. At the end of the quarter, Verizon had nearly 46 million lines in service, down 7.5% from a year earlier.

Verizon disclosed a bigger dent to earnings from the launch of its fiber optic services, called FiOS, in parts of 16 states where the lines have been installed. Executives said it had cost more than expected to acquire certain cable programming.

As a result, FiOS is now expected to reduce 2006’s per-share profit by an additional 2 cents, with the overall costs of upgrading the network, hooking up customers and delivering the services expected to total 31 cents or 32 cents a share.

Verizon shares fell $1.19, or 3.1%, on Monday to $37.65.