As Profit Falls 21%, Verizon Plans to Slash 8,000 Jobs

Published: July 27, 2009

The recession is having two effects on Verizon Communications business. Businesses are cutting back sharply, and laid-off people no longer need corporate cellphones and laptop data cards.

As a result, the company said on Monday, after it reported a 21 percent decline in net income for the second quarter, that it would eliminate 8,000 jobs in the second half of the year.

Consumers, by contrast, keep buying wireless phones and Verizon’s FiOS TV-phone-Internet package, although the company continues to lose a significant share of home phone business to cable operators.

All of Verizon’s job cuts, which will hit employees and contractors, will be made in its landline unit, the part of Verizon’s business that offers traditional communications services over copper or fiber cables to businesses and home users. Verizon lost nearly two million home phone customers in the last year, leaving it with 17.2 million residential voice customers.

Of the company’s 235,000 employees, 148,000 work in the landline unit, with the rest in Verizon Wireless, which is 45 percent owned by Vodafone. The cuts are in addition to 8,000 positions Verizon cut in the last year.

AT&T, the other large phone company, has been affected by many of the same trends, although it has been quicker to cut costs. The company has eliminated 14,000 positions this year.

AT&T’s wireless business has been growing faster than Verizon’s, largely because of AT&T’s exclusive deal to offer Apple’s iPhone. AT&T, which reported second-quarter earnings last week, added 1.4 million wireless customers compared with 1.1 million at Verizon. But that growth came at a price. Because of the heavy subsidy AT&T pays to Apple for each iPhone, its wireless profit margins of 38 percent were far lower than the 46 percent at Verizon.

On the landline side, it is Verizon that has increased its growth through investment, but at a cost of profitability. Verizon has invested more in its FiOS fiber optic system than AT&T has spent on upgrading its network, but has lower margins than AT&T. Verizon’s revenue from residential customers is essentially flat over a year ago, while AT&T’s fell by 6.3 percent. Verizon’s average home customer pays the company $72.59 a month, but the average FiOS home pays more than $135 a month.

Verizon added 300,000 FiOS TV customers in the quarter and 303,000 FiOS Internet customers.

For the second quarter, Verizon reported net income of $1.48 billion, or 52 cents a share, down from $1.88 billion, or 66 cents, a year earlier. Most of that decline was related to costs of its planned sale of some rural phone systems to Frontier Communications. Excluding the one-time charges, Verizon earned 63 cents a share, in line with analysts’ estimates and down 6 percent from a year ago.

Total revenue increased by 11.6 percent, to $26.9 billion, but most of that growth came from its acquisition of Alltel. The company’s core business grew by only 1.9 percent, sharply slower than the 5.3 percent pace of a year ago.

Wireless revenue was $15.5 billion, up 9 percent (excluding the acquisition), driven by increased use of data plans by cellphone customers. The most profitable group of wireless customers are those that pay bills every month directly to Verizon. The company added 1.1 million such customers in the quarter, down from 1.5 million in the second quarter of 2008.

Landline revenue was $11.5 billion, down 5.2 percent. The decline came entirely from business customers. The company has stayed in Wall Street’s good graces, however, by cutting costs fast enough to compensate for the decelerating growth. “Their second-quarter results reveal a tightly run ship,” Craig Moffett, an analyst with Sanford C. Bernstein & Company, wrote in a note to clients.

On a conference call with investors Monday, Dennis F. Strigl, Verizon’s president, told investors that he was not concerned about the impact of Apple’s popular iPhone. He said Verizon had many new handsets coming out, including the Palm Pre, which it will start selling early next year. And it is planning to open its own store for smartphone applications by the end of 2009.

Mr. Strigl said AT&T’s exclusive deal with Apple helped everyone. “It accelerated innovation,” he said. “It is very good for our customers. Everyone is coming out with their own iconic devices.”