Verizon Communications Reports Solid 3Q Earnings And Provides Outlook for Remainder of 2001

  • 752,000 new wireless customers, for 28.7 million total, with continued reduced customer churn, high percentage of contract sales and 20 million digital customers
  • 6.9 million long-distance customers nationwide, reaching previously announced, increased year-end targets
  • Long-distance approval in Pennsylvania, a $3 billion annual revenue opportunity
  • 135,000 net new DSL (digital subscriber line) customers for a third-quarter total of 975,000 and a current total of more than 1 million
  • 52 percent growth in data circuits as measured in access line equivalents (ALEs); total ALEs in service grew more than 20 percent to 128.5 million
  • Continued industry-leading cost control, with second consecutive quarter of cash expense reductions in the Domestic Telecom segment
  • 18.1 percent data transport revenue growth over third quarter 2000
  • 2.0 million increase, to 9.1 million total, in proportionate international wireless customers, a 28.6 percent increase over third quarter 2000

NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today reported adjusted third-quarter net income of $2.04 billion, or adjusted diluted earnings per share (EPS) of 75 cents, which includes a 3-cent-per-share impact related to the Sept. 11 terrorist attacks in New York City and at the Pentagon. This represents a 2.8 percent increase from $1.98 billion, or 73 cents per share, in the third quarter 2000.

Adjusted net income for the first nine months of 2001 was $6.1 billion, or $2.23 per share, compared to nine-month 2000 adjusted net income of $5.9 billion, or $2.13 per share.

"Verizon has come through a difficult experience in a strong financial and operational position," said Verizon Chairman and Co-CEO Charles R. Lee. "Verizon's depth of management talent and technical skill enabled us to respond with incredible speed to restore service and respond to this national crisis. At the same time, the breadth and scale of our company allowed us to continue to grow revenues in key areas of our business during the quarter, while we once again demonstrated industry-leading cost control."

Lee added, "Our view for the remainder of this year is shaped by the economic outlook, and we continue to take the appropriate steps to manage through the declining economy and to position ourselves for the recovery. We have adjusted our capital investment spending in 2001 to reflect this, while maintaining our investments in service quality and growth initiatives. Planning for the possibility of a prolonged economic weakness, we took steps earlier to reduce our cost structure in a way that has become ingrained in our business. This has given us the ability to continue to pursue growth opportunities and move forward with our long-distance applications and regulatory reform initiatives."

Verizon President and Co-CEO Ivan Seidenberg said, "Our focus on execution is solidifying Verizon's leadership position in a dynamic industry. In long distance, we had another successful quarter. We have already met previously increased year-end sales targets, and customers in Pennsylvania are responding enthusiastically to last week's long-distance launch in that state. In DSL, we have continued to focus on improving operations. In the past quarter, we have cut the average installation interval in half, and we recently unveiled an aggressive sales promotion. In wireless, we had a very strong, profitable quarter as we continued to keep our eye on the fundamentals of the business and quality customer growth."

"Looking ahead, these extraordinary times have lent new clarity to critical issues facing our industry, and we will work closely with federal and state regulators to create meaningful and necessary industry change." Referring to the policy goals recently outlined by Federal Communications Commission Chairman Michael Powell, Seidenberg said, "We are encouraged that Chairman Powell's agenda recognizes the key industry issues, including the need for a better wireless spectrum allocation process and a broadband policy that removes the barriers to deployment and supports even more investment in high-speed technology."


Consolidated Results

Consolidated adjusted revenues for the quarter grew 3.7 percent, to $17.0 billion from $16.4 billion in third quarter 2000. Nine-month consolidated revenues were $50.2 billion, up 7.7 percent from $46.6 billion in the first nine months of 2000. Revenues for the earlier period do not include first-quarter revenues from the Vodafone properties that were contributed to Verizon Wireless in April 2000; including those revenues, the nine-month increase would have been 5.2 percent.

Consolidated adjusted expenses increased 3.7 percent and cash expenses increased by 2.9 percent over third quarter 2000. Excluding the effects of the Sept. 11 attacks, merger-related expense savings and cost-control measures enabled the company to hold increases in cash expenses to 1.5 percent while continuing to invest in high-growth capabilities and services.

For the second consecutive quarter, Verizon's largest business unit, Domestic Telecom, decreased its cash expenses over the prior-year period; through the first nine months of 2001, cash expenses decreased 1.7 percent, to $17.9 billion from $18.2 billion in the first nine months of 2000. Third quarter 2001 cash expenses decreased 0.8 percent to $6.1 billion, including expenses to restore services in the World Trade Center area and at the Pentagon, and decreased 3.1 percent excluding this impact.


Highlights of Operations

Long Distance:


  • Verizon Long Distance, the nation's fourth largest long-distance provider, added approximately 850,000 customers in the quarter and ended the quarter with 6.9 million customers nationwide. The third-quarter increase includes approximately 160,000 retail customers in Hawaii not previously counted as part of the base. Excluding Hawaii, this is a more than 50 percent increase over third quarter 2000.
  • With 2,132,000 customers in New York and 475,000 customers in Massachusetts, more than 38 percent of long-distance customers come from Verizon's newest long-distance markets. Verizon now has 31.7 percent in-franchise market share in New York and 17.9 percent in-franchise market share in Massachusetts.
  • On Oct. 23, Verizon announced that it had begun marketing long-distance services in Pennsylvania, where Verizon serves about 7 million access lines and the long-distance market is an estimated $3 billion annual revenue opportunity.
  • Verizon is now offering long-distance service to approximately 54.5 percent of the former Bell Atlantic's access lines and more than two-thirds of all Verizon access lines nationwide. Verizon is now able to offer long distance in Massachusetts, Connecticut, New York and Pennsylvania, as well as 36 other states formerly served by GTE Long Distance.
  • On Oct. 18, Verizon notified state regulators in Maine that it plans to file a long-distance application with the FCC by year's end. The company is also working closely with state regulators in New Hampshire, Vermont, Rhode Island and New Jersey, where similar notices were filed earlier this year.


  • Verizon added 135,000 DSL lines in the third quarter and ended the period with approximately 975,000 lines in service -- a 625,000-line year-over-year increase. Average installation intervals have been cut in half, resulting in improved customer satisfaction.
  • On Oct. 17, Verizon announced it had surpassed a total of 1 million DSL customers, representing 85 percent year-to-date growth, and the company is targeting 1.2 to 1.3 million DSL subscribers by year-end.
  • Approximately 32.8 million of Verizon's 62.0 million access lines nationwide are DSL-qualified. Verizon recently extended the reach of its DSL service to an additional 3.5 million lines, as the company continues to add capacity in its central offices to meet continued strong demand. Approximately 2,050 central offices are equipped to provide DSL.
  • Also on Oct. 17, Verizon Online, the company's Internet service provider, unveiled a fourth-quarter sales promotion for DSL service, including a three-month introductory rate of $29.95 per month. The promotion also includes a free modem, installation kit and digital camera.
  • Verizon Online, which is the Internet service provider (ISP) to more than 1 million subscribers, reported a nearly 37 percent increase over third quarter 2000 customer totals.

Data and Telecom:

  • Data Services revenues grew to nearly $1.8 billion, driven by 18.1 percent growth in data transport services over third quarter 2000.
  • The 52 percent third-quarter growth in data circuits as measured in ALEs marked Verizon's fourth consecutive quarter of more than 50 percent growth. Data circuits now account for more than half of Verizon's 128.5 million ALEs.
  • On Oct. 23, Verizon and Microsoft announced that they were exploring ways to extend the reach of Verizon services through the use of select Microsoft®.NET and Windows®XP services. This would provide customers with remote access to features of Verizon's call services, such as Caller ID and voice mail, any time, anywhere and from virtually any device.
  • Sales of packages of domestic wireline telecommunications services -- combining Caller ID, voice mail and other features -- increased 53 percent in the third quarter 2001 compared to the third quarter 2000.

Verizon Wireless:

  • Verizon Wireless added 752,000 net new customers during the third quarter 2001, with the total number of customers growing 12.2 percent over the prior year to 28.7 million. Penetration of covered POPs, which have been adjusted to reflect updated census and network coverage data, increased to 13.0 percent.
  • Nearly 94 percent of Verizon Wireless' total base is made up of contract customers. Retail contract gross additions increased 7 percent year-over-year. Retail net additions of contract customers increased 36 percent over the prior year.
  • Total churn decreased to 2.2 percent, down year-over-year and sequentially.
  • With the largest digital base in the U.S., Verizon Wireless ended the quarter with 20 million digital customers, 69 percent of total subscribers. These customers generate more than 90 percent of the company's busy-hour usage.
  • Average usage per subscriber increased 36 percent to 274 minutes a month, with digital usage of approximately 370 minutes a month.
  • Service revenues for the quarter grew 13.2 percent to $4.2 billion, with service revenue per subscriber increasing 1 percent to more than $49, the fifth consecutive quarter of a year-over-year increase in service revenue per subscriber. Total revenues were $4.5 billion, up 12.0 percent. Quarterly operating income rose 19.9 percent to $688 million, with operating cash flow increasing 12.3 percent to $1.6 billion.
  • Industry-leading operating cash flow margin remained strong at 39 percent for the quarter.
  • Verizon Wireless ended the quarter with 1.2 million subscribers to its Mobile Web and Mobile IP data services.
  • This month the company introduced its 1XRTT high-speed Express Network for select enterprise customers and developers in the Philadelphia area. From laptops and PDAs, these subscribers are using the network's advanced high-speed data rates to access corporate intranets and the Internet. The company expects to consistently deliver 40-60 Kbs (kilobits per second) speeds, significantly higher than with alternative wireless technologies, when it rolls out Express Network to key markets around the country, including New York, in the fourth quarter.


  • Revenues from consolidated international operations grew 17.5 percent over third quarter 2000 to $597 million. Operating income increased $96 million to $125 million, while operating cash flow increased 78 percent to $210 million compared to third quarter 2000.
  • Total proportionate revenues increased $76 million over third quarter 2000 to $1.5 billion. Proportionate operating income of $350 million and proportionate operating cash flow of $618 million increased 15.9 percent and 17.9 percent, respectively, compared to third quarter 2000.
  • The number of proportionate international wireless customers served by Verizon investments increased by 2.0 million to 9.1 million, a 28.6 percent increase over third quarter 2000. Verizon's international wireless investments reported strong customer gains, including Omnitel, now with 16.7 million subscribers; EuroTel Praha with 2.9 million; and Stet Hellas with 2.0 million.
  • Verizon's new global network is progressing on plan. During the third quarter, Verizon Global Solutions Inc. added additional locations -- including London, Paris, Amsterdam, Brussels, Frankfurt and Dusseldorf -- to its network, which now links the U.S. and major commercial and financial centers around the world. Also during the quarter, Verizon rolled out high-speed global private-line service.

Information Services:

  • Revenues from Verizon's directory publishing and electronic commerce operations were $1.1 billion in the third quarter, an increase of 14.6 percent from third quarter 2000 due to operational growth and shifts in directory publication dates.
  • Revenues from SuperPages.com, Verizon's Internet directory service, grew 63.6 percent over third quarter 2000, as Information Services carried out its strategy to bundle print and online services.

Reported Results

For the third quarter of 2001, Verizon reported consolidated net income of $1.9 billion, or 69 cents a diluted share, compared to $3.5 billion, or $1.27 per share, during the third quarter 2000. Current-quarter net income includes transition costs and mark-to-market adjustments for financial instruments totaling $165 million, or 6 cents a share. Third quarter 2000 included net income reported on sales of assets of approximately $1.3 billion, or 47 cents a share. Assets sold included certain non-strategic wireline properties, which were reported in operating income, and overlapping wireless properties that were sold for regulatory reasons and which were reported as an extraordinary item. In third quarter 2000, the company also recorded a gain of $245 million, or 9 cents a share, for a mark-to-market adjustment for notes issued in 1998 that are exchangeable into shares of Cable & Wireless plc and NTL Inc., and transition costs of $65 million, or 2 cents a share.

Reported net income for the first nine months of 2001 was $2.4 billion, or 89 cents a share, compared to $9.9 billion, or $3.60 a share, in the first nine months of 2000.

Reported operating revenues rose 2.8 percent in the third quarter 2001, to $17.0 billion, compared to the third quarter 2000. For the first nine months of 2001, Verizon's revenues rose 4.9 percent, to $50.2 billion, compared to the first nine months of 2000.


2001 Outlook

Verizon anticipates a continued financial impact related to the Sept. 11 terrorist attacks and to the ongoing economic downturn in the fourth quarter 2001.

In the fourth quarter, the company is targeting the following:

  • Quarterly revenue growth of approximately 3 percent
  • EPS -- including a fourth-quarter impact from Sept. 11 restoration efforts of approximately 3 cents -- of 77 to 80 cents
  • Capital expenditures of $4.5 to $4.7 billion

The company is updating the following year-end 2001 financial targets accordingly:



  • Annual revenue growth of 4 to 5 percent; previous target was 5 to 6 percent
  • EPS of $3.00 to $3.03, including impacts of approximately 6 cents from the Sept. 11 attacks; excluding the impacts, EPS in the range of $3.06 to $3.09, which is in line with previous targets. Additionally, the company estimated the impact of FAS 142, a Financial Accounting Standard that will be implemented next year relating to the amortization of goodwill, to be 8 cents a share on an annual basis.
  • Capital expenditures of $17.0 to $17.2 billion; previously $17.5 billion

NOTE: The financial tables associated with this news release can be found on Verizon's Investor Web site.

NOTE: This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: the duration and extent of the current economic downturn; materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the timing and profitability of our entry and expansion in the national long-distance market; our ability to combine former Bell Atlantic and GTE operations, satisfy regulatory conditions and obtain revenue enhancements and cost savings; the profitability of our broadband operations; the ability of Verizon Wireless to achieve revenue enhancements and cost savings, and obtain sufficient spectrum resources; the continuing financial needs of Genuity Inc., our ability to convert our ownership interest in Genuity into a controlling interest consistent with regulatory conditions, and Genuity's ensuing profitability; our ability to recover insurance proceeds relating to equipment losses and other adverse financial impacts resulting from the terrorist attacks on Sept. 11, 2001; and changes in our accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings.