Verizon wireless 2nd quarter 2006 results

[Barry]

Verizon Communications reported strong financial and operational results for the second quarter 2006.

Wireless
- Total ARPU up year-over-year and up from first quarter 2006; retail ARPU of $50.34
- 1.8 million net customer additions; 54.8 million total customers, up 15.8 percent from second quarter 2005; 52.6 million retail customers
- Total revenues up 18.0 percent from second quarter 2005, with data service revenues topping $1 billion for the quarter; EBITDA margin (non-GAAP) of 44.4 percent
- Consecutive quarterly industry-record low churn rates (customer turnover); 1.13 percent total churn; 1.05 percent retail churn; 0.87 percent retail postpaid churn

Reported earnings in the second quarter 2006 reflect 9 cents per share in special items for severance and related pension and benefits charges, and for employee relocations and merger integration costs. Reported earnings in the second quarter 2005 had included a net of 12 cents per share in non-recurring gains, principally from the sale of Verizon's wireline and directory operations in Hawaii.

Before special items (non-GAAP), Verizon's earnings were 64 cents per share in the second quarter 2006, compared with 63 cents in the second quarter 2005.

For the full year, Verizon has reiterated guidance of 2006 EPS similar to 2005 earnings of $2.56 per share before special items.

Consolidated operating revenues in the second quarter 2006 were $22.7 billion, a 25.6 percent increase compared with the second quarter 2005. Consolidated total operating expenses were $19.1 billion, a 35.7 percent increase compared with the second quarter 2005. Reported results in the second quarter 2006 include revenues and expenses from the former MCI, Inc., which merged with Verizon on Jan. 6, 2006.

On a pro-forma (non-GAAP) basis, comparing second quarter 2006 with second quarter 2005, adjusted operating revenues increased 2.3 percent, adjusted cash expenses increased 1.0 percent and adjusted operating income increased 12.4 percent. Adjusted operating income margins, including the effects of net pension and OPEB (other post-retirement benefits), would have been 17.7 percent in second quarter 2006, compared with 16.1 percent in second quarter 2005. Pro-forma adjusted information presents the combined operating results of Verizon and the former MCI on a comparable basis.

Verizon Wireless again generated industry-leading net customer additions and profitability in the second quarter 2006, and again set new all-time low churn records among the major carriers.

This was the 16th consecutive quarter of double-digit, year-over-year revenue growth. This was the sixth consecutive quarter with EBITDA margins above 40 percent, the ninth consecutive quarter in which the company added more than 1.5 million total customers and the eighth consecutive quarter in which it added more than 1.5 million retail customers.

Verizon Wireless added 1.8 million net customers in the second quarter 2006, for a total of 54.8 million customers nationwide, representing a 15.8 percent increase in total customers from the end of the second quarter last year. During the past 12 months, the company added nearly 7.5 million net customers, more than any other carrier in the industry.

All of the net additions in the quarter and almost all of those in the past 12 months were retail customers -- that is, businesses and consumers directly served and managed by Verizon Wireless and who buy Verizon Wireless-branded service, rather than customers of the company's resellers.

Verizon Wireless continued to set new industry records for low customer churn, a key measure of customer loyalty. For the second quarter 2006, total churn was a record-low 1.13 percent, and churn among the company's retail postpaid customers was 0.87 percent, another record.

Verizon Wireless revenues grew 18.0 percent year-over-year to $9.3 billion in the second quarter 2006, driven by continued strong customer growth and demand for data services. Topping $1.0 billion for the first time in a quarter, wireless data revenues accounted for nearly 12.9 percent of total wireless service revenues.

Verizon Wireless operating income margin was 25.6 percent in the quarter, reflecting its ability to maintain industry-leading cost efficiency even as it added the most retail customers. Wireless EBITDA margin was 44.4 percent. (EBITDA -- or earnings before interest, taxes, depreciation and amortization -- is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by wireless service revenues.)

Wireless:

- Based on publicly available information, Verizon Wireless has the largest retail customer base in the industry -- 52.6 million retail customers of 54.8 million total customers, which includes retail and wholesale. In keeping with the company's focus on retail, Verizon Wireless delivered not only the most net additions in the industry in the second quarter, but also the most retail net additions.

- Service revenues (which do not include taxes and regulatory fees) increased 16.9 percent to $8.0 billion for the second quarter 2006. Average monthly service revenue per customer (ARPU) increased to $49.71, up 0.6 percent from the similar period in 2005 and up 2.1 percent from the prior quarter. Retail service revenue per retail customer was higher at $50.34 for the quarter, an increase of 0.5 percent over 2005.

- The company's cost efficiency continued to lead the industry, as cash expense per customer in the second quarter declined 1.8 percent year-over-year to $27.66, even as the company added a high volume of customers.

- Data services revenues contributed slightly over $1.0 billion, more than double the same period a year ago. This was the first time quarterly data services revenues exceeded the billion-dollar mark. In the second quarter, data revenues contributed 12.9 percent of service revenues, up from 7.0 percent in the second quarter of 2005. Data ARPU increased 84 percent from second quarter 2005. The company now has 28.9 million data customers -- a 52 percent increase compared with second quarter 2005.

- Driving the growth in data services revenues are the company's national 3G EV-DO high-speed network and an industry-leading lineup of business and consumer devices. By the end of the second quarter, 10 million customers had broadband-capable devices, including phones, PDAs, Blackberries and laptop PC cards.

- During the second quarter, the company continued to expand its business customer base and ranked highest in the second annual J.D. Power and Associates 2006 Business Wireless Satisfaction StudySM. The survey of 2,725 businesses measured overall customer satisfaction with call quality, performance and reliability, customer service, billing, and other criteria.

- For business customers, Verizon Wireless introduced two new PDAs, the ultra-thin Motorola Q and the Treo 700p, the latest in a steady stream of handheld devices that offer productivity solutions for mobile professionals. Both devices provide all-in-one voice and data capabilities and use Verizon Wireless' high speed, award-winning broadband network to send and receive data.

- For consumers, the company launched four new V CAST Music-enabled phones: the sleek, music-centric ChocolateTM by LG, available exclusively from Verizon Wireless; the LG VX8300; the RAZR V3m; and the SCH-a930. V CAST Music lets customers preview, download and play high-quality, digital music on their handsets over the Verizon Wireless broadband network or on their PCs, as well as transfer their own music from their PC to their handset. Verizon Wireless also launched the industry's only wireless phone with a 3.2 mega pixel camera, the SCH-a990, and ChaperoneSM service, a new tool for parents to help identify the whereabouts of their young children who are carrying an LG Migo phone.

- The company continued to expand its distribution channels by adding post-paid service plans to its pre-paid lineup at 1,900 Wal-Mart stores nationwide.

- Verizon Wireless customers sent and received an industry-record-setting 12 billion text messages in the quarter. Customers exchanged more than 232 million picture and video messages, and completed nearly 55 million downloads of games, ringtones, ringback tones and exclusive content.

-Verizon Wireless continued to garner top honors during the quarter for its industry-leading customer satisfaction and loyalty. The company ranked first in the American Customer Satisfaction Index (ACSI) survey and the Brandweek 2006 Brand Keys Customer Loyalty Indexâ, and tied for first place in the J.D. Power and Associates 2006 Wireless Customer Care Performance StudySM.

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