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How Long Will Verizon Be a Phone Company?

How Long Will Verizon Be a Phone Company?
By Jennifer LeClaire

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“Verizon is not installing wireline services to hurricane hit areas. That is very interesting and a testament to the future. The future is wireless. Going forward, at some point, we will have to stop calling Verizon a phone company since it continues to move away from telephone toward wireless, FiOS, television and Internet,” said wireless analyst Jeff Kagan.
 



Telecom giant Verizon Communications is reporting year-over-year double-digit percentage growth on both operating income and earnings per share for the third consecutive quarter. But with most of that growth coming from outside the traditional phone service, will the company soon have to stop marketing itself as a traditional telecom provider?

Verizon’s third quarter 2013 results clearly reveal high customer demand for wireless phone subscriptions, as well as FiOS and strategic enterprise services. In fact, the FiOS services are what’s driving continued strength in the company’s wireline revenue.

“Our unwavering focus on wireless, FiOS and strategic enterprise services has produced consistent performance, and we’ve delivered double-digit earnings growth in six of the past seven quarters,” said Lowell McAdam, Verizon chairman and CEO. “Verizon’s strategic networks form a powerful distribution platform for future growth and innovation.”

Anything But Wireline-Driven

Again, the company’s future looks anything but wireline-driven. In September, it inked a deal to acquire Vodafone's 45 percent stake in Verizon Wireless for $130 billion. The transaction is expected to close in the first quarter of 2014.

When the ink dries, Verizon will own 100 percent of the largest wireless carrier in the United States. The company said the wireless division will be better equipped to leverage changing competitive dynamics in the market and capitalize on the evolution of consumer demand for wireless, video and broadband services. That should drive up wireless revenues even more.

As it stands, total revenues on the wireless side were $20.4 billion in the third quarter. That’s up 7.2 percent year-over-year. Service revenues in the quarter totaled $17.5 billion, up 8.4 percent year over year. Retail service revenues grew 8 percent year over year, to $16.8 billion. Verizon Wireless added 1.1 million net retail connections, including 927,000 retail postpaid net connections, in the third quarter.

By contrast, consumer revenues on the wireline side were only $3.7 billion. That’s a 4.3 percent increase year-over-year. Consumer revenues have grown more than 4 percent year over year for five consecutive quarters. But noteworthy is the fact that most of those revenues came from FiOS. FiOS revenues grew 13.4 percent, to $2.8 billion in the third-quarter 2013, compared with $2.5 billion in the third-quarter 2012.

A Testament to the Future

We asked Jeff Kagan, a wireless industry analyst, for his take on the metamorphosis of Verizon. He told us the company’s wireline business is shrinking, which is par for the industry.

“Verizon is not installing wireline services to hurricane hit areas. That is very interesting and a testament to the future. The future is wireless,” Kagan said. “Going forward, at some point, we will have to stop calling Verizon a phone company since it continues to move away from telephone toward wireless, FiOS, television and Internet.”

What will Verizon do to maintain its levels of growth as the industry continues to slow? Kagan said there are other business areas the company can enter. However, it has not spent much time discussing other opportunities -- not yet anyway.

“I believe Verizon will have to start discussing other business opportunities to continue their growth in order to keep their investors at bay,” he said. “Tomorrow looks different than yesterday. It will be interesting to watch how Verizon handles tomorrow.”
 

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