Verizon Communications Second Quarter Earnings Highlighted by Strong Long-Distance and Wireless Sales

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  • 804,000 new long-distance customers, 6.0 million nationwide
  • 253,000 new Massachusetts long-distance customers since market entry two months ago
  • 808,000 new wireless customers, for 27.9 million total, with largest digital customer base in U.S.
  • 120,000 net new DSL (digital subscriber line) customers for total of 840,000
  • Approximately 25 percent data transport revenue growth over second quarter 2000
  • 53 percent growth in data circuits as measured in access line equivalents (ALEs); total ALEs in service grow nearly 21 percent to 125 million
  • 34 percent growth in proportionate international wireless customers to 8.7 million


Verizon Communications Inc. (NYSE:VZ) today announced second quarter earnings and updated financial guidance for the balance of the year. The company reported adjusted diluted earnings per share (EPS) for second quarter 2001 of 77 cents on net income of $2.1 billion, a 6.9 percent increase from 72 cents, or $2.0 billion, in second quarter 2000, excluding the after-tax effect of write-downs of certain investments and of merger transition costs described below.

Adjusted net income for the first six months of 2001 was $4.1 billion, or $1.49 per share, compared to six-month 2000 adjusted net income of $3.9 billion, or $1.41 per share.

Consolidated adjusted revenues for the quarter grew 5.0 percent, to $16.9 billion from $16.1 billion in second quarter 2000, excluding the impact of overlap wireless properties in the prior period, with more than 41 percent, or approximately $7 billion generated from high-growth data, wireless, long-distance, DSL and international services. Verizon's Domestic Telecom business grew revenues to nearly $11.0 billion while operating in the nation's most competitive markets.

Six-month consolidated revenues were $33.2 billion, up 9.9 percent from $30.2 billion in the first six months of 2000. Revenues for the earlier period do not include first-quarter revenues from the Vodafone AirTouch properties that were contributed to Verizon Wireless in April 2000; including those revenues, the six-month increase was 6.0 percent.

''As we pass the one-year anniversary of Verizon's formation, the strength of our assets is evident. Our expanded scale, scope and financial strength have enabled us to absorb the impact of the economic slowdown this quarter while we continue to invest for future growth. Our solid performance in the first half of this year is testimony to the success of our merger integration, our relentless attention to cost, and our continued drive to deliver superior service and products to customers under the Verizon brand,'' said Verizon Chairman and Co-CEO Charles R. Lee.

''However, the slowing economy and the weakening demand for basic wireline services will impact the growth of our business going forward, and we are updating our 2001 financial guidance to reflect these impacts,'' Lee said.

Verizon President and Co-CEO Ivan Seidenberg said, ''As we navigate the difficult economic environment, we continue to focus on execution. In the second quarter, our long-distance business knocked the cover off the ball not only in Massachusetts but across our footprint, and we are increasing our year-end target by 300,000 subscribers. While we experienced a bit of a slowdown in DSL as we implemented new pricing and satisfied regulatory requirements, demand remains strong and we are back on track and remain comfortable with our year-end targets. Additionally, Verizon Wireless continued its long track record of solid subscriber growth.''

''On the expense side, we are committed to realizing the synergy benefits of the merger, and will be even more aggressive in our cost controls in light of the economic slowdown. As the 1.7 percent cash expense growth this quarter indicates, we are making excellent progress on merger integration, and also reacting to the economic impacts in a timely fashion. Our disciplined focus on cost and productivity will produce significant benefits as the economy recovers, and our commitment to investing in our growth businesses is unwavering,'' he said.

Consolidated adjusted expenses increased 3.4 percent over second quarter 2000, excluding the impact of overlap wireless properties in the prior period. Merger-related expense savings and cost-control measures enabled the company to hold increases in cash expenses to 1.7 percent at the same time the company continued to invest in high-growth capabilities and services. Verizon's largest business unit, Domestic Telecom, decreased its cash expenses over second quarter 2000 by 3.5 percent, and its total adjusted expenses declined by 0.3 percent. Additionally, Domestic Telecom is currently exploring the sale of 1.2 million access lines in Alabama, Kentucky and Missouri.

Highlights of Operations

Long Distance:

  • Verizon Long Distance, the nation's fourth largest long-distance provider, added approximately 804,000 new customers in the quarter and ended the quarter with 6.0 million customers nationwide, a 47.2 percent increase over second quarter 2000. As a result of this continuing success, the company is increasing its year-end subscriber target by 300,000 to 6.7 to 6.9 million subscribers. Previously, the target was 6.4 to 6.6 million subscribers.

  • In April, the company launched its simple, surprise-free long-distance plans in Massachusetts following approval of its application to the Federal Communications Commission (FCC). The initial customer response was even stronger there than in New York, and the company added 253,000 Massachusetts customers in the quarter, capturing nearly 10 percent of the consumer market. Of these, some 34,000 were ''win-back'' customers who returned to Verizon from other carriers for their intraLATA toll calling as well as their long distance.

  • The company's success in New York also continued as it ended the quarter with nearly 2 million customers with about 2.2 million lines in the state using its long-distance services. Almost 97,000 of the New York customers added in the quarter were ''win-backs,'' increasing the total number of ''win-back'' customers in New York to nearly 544,000.

  • On June 21, Verizon filed for FCC approval to offer long-distance service in Pennsylvania, where Verizon serves about 7.0 million access lines and the long-distance market is about a $3 billion annual opportunity. The Pennsylvania Public Utilities Commission has announced its support of the application. Last week, the Department of Justice (DOJ) -- while noting its concern with a number of issues -- acknowledged that the FCC could grant Verizon's long-distance application. The company is confident that it has addressed the issues raised by the DOJ.

  • On July 20, the FCC approved the company's application to provide long distance in Connecticut.


  • Verizon added 120,000 DSL lines in the second quarter and ended the period with approximately 840,000 lines in service, almost four times the 220,000 subscribers at the end of second quarter 2000. The number of new lines added in the second quarter was affected by the transition of the company's DSL operations in California to a separate data affiliate and database reconciliation. Adjusting for these issues, DSL net additions would have been approximately 150,000. The company's year-end target of 1.2 to 1.3 million DSL subscribers remains unchanged.

  • Verizon Online, the company's Internet service provider, ended the quarter with over 1 million subscribers, a 39 percent increase over second quarter 2000.


  • Revenues from data transport services increased nearly 25 percent over second quarter 2000, and when combined with advanced data services, total data revenue reached $1.7 billion, up from $1.5 billion in the second quarter 2000.

  • Verizon ended the quarter with data circuits in service equivalent to 63 million voice-grade access lines, up 53 percent from second quarter 2000. These data circuits combined with 62 million voice-grade access lines to give Verizon 125 million total access line equivalents in service at the end of the quarter, nearly 21 percent more than at the end of second quarter 2000.

  • Verizon Enterprise Solutions Group announced expansion of the company's network out of its local serving area to new parts of Dallas/Fort Worth with facilities-based data transport services that let large businesses purchase end-to-end communications links for their sites across the country. The expansive move, giving customers end-to-end Verizon service, will be followed soon by similar offerings in regions of the Seattle and Los Angeles markets where the company does not provide local service.

Verizon Wireless:

Verizon Wireless comparisons assume that the joint venture excluding overlap properties existed on Jan. 1, 2000, and historical subscriber and operating metrics are adjusted for the base restatement announced in April.

  • Verizon Wireless added 808,000 net new customers during the second quarter 2001. Total customers grew to 27.9 million, a 12.7 percent increase over last year's 24.8 million subscriber base. Penetration of covered POPs increased to 13.7 percent for an annual penetration gain of 1.5 percent.

  • As previously announced, total gross customer additions rose slightly over the year-earlier quarter, while contract gross additions increased 10.7 percent over the second quarter 2000 and accounted for 85.8 percent of total gross additions.

  • Churn for contract customers decreased from the first quarter to 2.0 percent, while total churn, including pre-paid customers, decreased to 2.3 percent, which is below the industry average.

  • Verizon Wireless, with the largest digital base in the U.S., ended the quarter with almost 18 million digital customers, 64 percent of total subscribers. These customers generate 88 percent of the company's busy-hour usage.

  • Service revenues for the quarter grew 16.9 percent to $4.1 billion, with service revenue per subscriber increasing 3.7 percent to $49, the fourth consecutive quarter of a year-over-year increase in service revenue per subscriber. Total revenues were $4.4 billion, up 15.6 percent. Quarterly operating income rose 44.8 percent to $679 million, with operating cash flow increasing 18.2 percent to $1.6 billion. Operating cash flow margin was 38.5 percent for the quarter, up from 38.1 percent.

  • Verizon Wireless ended the quarter with more than 1.1 million subscribers to its Mobile Web and Mobile IP data services.

  • The company's strong subscriber growth and financial performance resulted from a number of initiatives during the quarter, including the company's launch of its store-within-a-store at 4,400 RadioShack locations, the introduction of its Worry Free Guarantee for customers, nationwide promotions and its new digital prepay product.


  • Revenues from consolidated international operations grew 27.0 percent over second quarter 2000 to $598 million.

  • Total proportionate revenues grew 8.6 percent to $1.5 billion.

  • The number of proportionate international wireless customers served by Verizon investments increased by 2.2 million to 8.7 million, up 33.9 percent over second quarter 2000.

  • Verizon Global Solutions Inc. (GSI) continued its deployment of its planned global network during the quarter. GSI obtained licenses in Belgium, France, Germany, Netherlands, Japan and the United Kingdom, and switching capabilities were deployed in Los Angeles, Hawaii, and London. Additional locations in Europe are scheduled to go in-service early in the third quarter.

Information Services:

  • Revenues from Verizon's directory publishing and electronic commerce operations were $984 million in the second quarter, a decrease of 6.8 percent from second quarter 2000 due to shifts in directory publication dates to the third quarter. Revenues from, Verizon's Internet directory service, grew 44.5 percent over second quarter 2000 as Information Services carried out its strategy to bundle print and online services.

  • The company also announced today that it has completed the acquisition of TELUS' directory business. The company said that it will form a national print, wireless and online directory services company by combining that business with its British Columbia-based Dominion Information Services and its Quebec-based Les Annuaires du Quebec directory operations. After the combination, Dominion Information Services Inc. will be Canada's second-largest directory publisher. The combined operations will produce approximately 118 directory titles, distribute nearly 11 million copies and employ more than 800 people.

Reported Results

For the second quarter of 2001, the company reported consolidated losses of $1.0 billion or 38 cents per share as compared to consolidated profits of $4.9 billion or $1.79 per share during the second quarter of 2000. The losses reported during the second quarter of 2001 include the effect of net charges totaling $3.1 billion or $1.15 per share. These net charges include a $2.9 billion write-down in the value of certain of the company's investments, including Cable & Wireless plc, NTL Incorporated, and Metromedia Fiber Network Inc., due to persistent, declining stock prices; $162 million in merger transition costs; and $37 million in mark-to-market adjustments for financial instruments. During the second quarter of 2000, the company recorded a $1.9 billion non-cash gain in connection with the restructuring of its investment in Cable & Wireless Communications.

The income reported during the second quarter of 2000 includes the effect of net gains totaling $2.9 billion or $1.07 per share. These net gains include a $1.9 billion non-cash investment gain as discussed above and $1.5 billion of net gains related to the sale of assets. These gains were offset, in part, by $749 million in costs incurred in connection with the closing of the merger and other non-recurring items.

Reported net income for the first six months of 2001 was $0.6 billion, or $0.20 per share, compared to $6.4 billion, or $2.33 per share, in the first six months of 2000.

Financial and Operating Guidance

Due to the impact of the slowing economy and weakening demand as described above, the company is updating the following 2001 financial and operating targets:

  • Annual revenue growth of 5 to 6 percent, previous target was 7 percent
  • 2001 EPS of $3.07 to $3.12, previous target was $3.13 to $3.17

The following target increases:

  • 6.7 to 6.9 million long-distance customers, previous target was 6.4 to 6.6 million

The following 2001 targets remain unchanged:

  • Capital expenditures of $17.5 billion
  • DSL subscribers of 1.2 to 1.3 million


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

Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States, with 125 million access line equivalents and approximately 28 million wireless customers. Verizon is also the largest directory publisher in the world. A Fortune 10 company with approximately $65 billion in annual revenues and about 260,000 employees, Verizon's global presence extends to more than 40 countries in the Americas, Europe, Asia and the Pacific. For more information on Verizon, visit


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: 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, universal service, 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 into the in-region 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 entry into the broadband access market; the ability of Verizon Wireless to combine operations and achieve revenue enhancements and cost savings, and obtain sufficient spectrum resources; our ability to convert our ownership interest in Genuity Inc. into a controlling interest consistent with regulatory conditions, and Genuity's ensuing profitability; and changes in our accounting assumptions that may be required by regulatory agencies, including the SEC, or that result from changes in the accounting rules or their application, which could result in an impact on earnings.

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