NEW YORK Verizon Communications Inc.'s second-quarter earnings rose 12 percent, the company said Monday, while revenue was slightly shy of expectations and customers disconnected their landlines faster than before.
The nation's second-largest telecommunications company earned $1.88 billion, or 66 cents per share, in the quarter ended June 30, up from $1.68 billion, or 58 cents per share, a year ago.
Verizon said that excluding a merger-related item, it earned 67 cents a share, beating the average estimate of analysts polled by Thomson Financial by 2 cents.
Revenue rose 3.7 percent to $24.1 billion from $23.27 billion a year ago. Thomson says analysts expected $24.2 billion.
Verizon shares fell 50 cents, or 1.5 percent, to $33.95 in morning trading.
Investors had been expecting the weak economy to catch up to the big telecommunications companies in the second quarter. AT&T's report last week showed that customers were quicker to move to wireless and cable telephone, but the company otherwise did better than expected.
Verizon lost 11.4 percent of its residential landlines in the past year, up from a 10.9 percent decline in the first quarter. But the second quarter is usually a poor one for landlines, said Verizon Chief Financial Officer Doreen Toben.
"I'd say we haven't seen any substantial change in trends," she said.
Verizon's local-phone service areas, concentrated in the Northeast, have been less hard hit by the decline of the real-estate market than AT&T, which spans Florida and the Midwest. But Verizon is feeling the heat from cable companies, which now offer phone service in nearly their entire service areas.
"It's very stiff competition that we're receiving from cable," said Verizon's chief operating officer, Denny Strigl.
Analysts were mixed on the landline results, but uniformly disappointed by the results in broadband. For the first time, Verizon also reported a drop in the number of DSL subscribers, as customers moved to its fiber-optic service, FiOS, where it is available. It lost 133,000 Digital Subscriber Lines while adding 187,000 FiOS Internet customers.
Craig Moffett, analyst at Sanford Bernstein, said it was "a remarkable turn of events" that DSL, which is the only broadband offering in two-thirds of Verizon's local-phone service area, is now shrinking.
Looking ahead, Verizon expects to remain relatively insulated from the turmoil in the economy.
"Although we may see some softening in some of our volumes, we do not expect any significant economic impact on our financial results in the second half of the year," Strigl said.
As usual, the company's strongest results came from the wireless arm, which added 1.5 million subscribers for a total of 68.7 million. Verizon Wireless is a joint venture with Vodafone Group PLC. All of its $12.1 billion in quarterly revenue but only 55 percent of its $3.46 billion in operating income are recorded on Verizon's books.
AT&T launched the second version of Apple Inc.'s iPhone on July 11, after the end of the second quarter, and has reported selling twice as many in the first 12 days as it did when the first model went on sale a year ago.
Strigl said the company was seeing what it believes is a "minimal short-term impact" in customer flow due to the iPhone. He also said the effect looks small relative to the size of Verizon Wireless, suggesting that most new iPhone customers who aren't already on AT&T are coming from other carriers, like Sprint Nextel Corp.
Separately, Verizon said it started selling cable-TV service over FiOS in New York City on Monday. The company received final regulatory approval from the state two weeks ago. Verizon is in the early stages of building out its network in the city, and still needs to negotiate with landlords for access to apartment buildings. It's the first major metropolitan area to be reached by FiOS TV.